Question

Adams Car Wash, Inc. expected to wash 1,000 cars during the month of August. Washing each car was expected to require 0.2 hour of labor. The company actually used 207 hours of labor to wash 910 cars. The labor usage variance was $400 unfavorable.

Required

1. Determine the standard labor price.

2. If the actual labor rate is $13, indicate whether the labor price variance would be favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

Need to know the total labor price variance!

Answer 1

Standard cars = 1000

Labour hour per car = 0.2 hrs

Total hours = 1000 * 0.2= 200 hours

Actual cars washed = 910

Actual hours used = 207 hours

Standard hours for actual cars washed = 0.2*910 = 182 hours

Labour usage variance = (standard hours - Actual hours) standard rate

($400) = (182 - 207) * standard rate

($400) = (25) *standard rate

Standard rate = ($400) / (25)

a. Standard labour price= $16 per hour

b. If actual labour rate = $13

Labour price variance = (standard price - actual price ) * actual hours

= (16-13) * 207

= 3 * 207

Labour rate variance = 621 (F) favourable