Question

Your Company manufactures a single product. The company uses a standard cost system and has established the following standards for one unit of product:

		Standard	Standard Price	Standard
		Quantity	or Rate	Cost per Unit
	Direct materials.............................	1.5 pounds	$3.00 per pound	$4.50
	Direct labor....................................	0.6 hours	$6.00 per hour	$3.60
	Variable manufacturing overhead.	0.6 hours	$1.25 per hour	$0.75

During March, the following activity was recorded by the company:

• The company produced 3,000 units during the month.
• A total of 4,750 pounds of material were used
• The actual cost of direct materials was $13,775
• During March; 1600 direct labor hours were worked at a rate of $6.50 per hour.

What is the labor rate ($) variance for March?   

		$480 U
		$480 F
		$800 U
		$800 F

Answer 1

Answer)

Calculation of labor rate variance

Labor rate variance = (Standard rate per labor hour – Actual rate per labor hour) X Standard Labor hours allowed for actual output

                                              = ($ 6.00 per hour - $ 6.50 per hour) X 1,600 hours

                                              = $ 800 (Unfavorable) or $ 800 U

Therefore labor rate variance is $ 800 U.