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ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor rate variance.Multiple choice question.$14,400 U$14,400 F$10,000 F$10,000 U

Question

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ 1.00perpound;Directlabor:1hour@1.00 per pound; Direct labor: 1 hour @ 10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of 17,280;Directlabor:36,000hoursatatotalcostof17,280; Direct labor: 36,000 hours at a total cost of 374,400. Compute the direct labor rate variance.Multiple choice question.14,400U14,400 U14,400 F10,000F10,000 F10,000 U

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Solution

The direct labor rate variance is calculated as follows:

First, calculate the standard cost per hour of direct labor, which is given as $10.00.

Next, calculate the actual cost per hour of direct labor. This is done by dividing the total actual cost of direct labor (374,400)bythetotalactualhoursofdirectlabor(36,000hours).Thisgivesanactualcostperhourof374,400) by the total actual hours of direct labor (36,000 hours). This gives an actual cost per hour of 10.40.

The labor rate variance is then calculated by subtracting the standard cost per hour from the actual cost per hour, and then multiplying by the total actual hours of direct labor.

So, the calculation is: (10.40−10.40 - 10.00) * 36,000 = $14,400.

Because the actual cost per hour is higher than the standard cost per hour, this is an unfavorable variance.

So, the answer is $14,400 U.

This problem has been solved

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