Question

Information for Bonanza Company's direct labor cost for February is as follows:

Actual direct labor hours		83,000
Total direct labor payroll	$	539,500
Efficiency variance	$	5,928	F
Rate variance	$	107,900	U

What were the standard direct labor hours for February?

Multiple Choice

• 83,000

• 84,140

• 85,540

• 86,140

Answer 1

· Working

>Actual rate = $ 539500 / 83000 DLH = $ 6.50

>Rate Variance = (Actual rate – Standard rate) x Actual hours
$ 107900 U = ($6.50 – SR) x 83000 DLHs
107900 = (6.50 – SR) x 83000
107900 / 83000 = 6.50 – SR
1.3 = 6.50 – SR
SR = 6.5 – 1.3
Standard rate = $ 5.20 per DLH

>Efficiency Variance = (Standard hours – Actual hours) x Standard rate
$ 5928 F = (Standard hours – 83000) x $ 5.20
5928 = (SH – 83000) x 5.20
5928 / 5.2 = SH – 83000
1140 = SH – 83000
1140 + 83000 = Standards hours
Standard hours = 84,140 hours

· Correct Answer = Option #2: 84,140 standard hours.