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$10,000 F$10,000 U$14,400 F
Question
ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ 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 374,400. Compute the direct labor rate variance.Multiple choice question.10,000 F14,400 F
Solution
To calculate the direct labor rate variance, we first need to find the standard cost per hour and the actual cost per hour.
The standard cost per hour is given as $10.00.
The actual cost per hour is calculated by dividing the total actual cost of labor by the total actual hours of labor. So, 10.40 per hour.
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 labor.
So, (10.00) * 36,000 hours = $14,400.
Since the actual cost is higher than the standard cost, this is an unfavorable variance. So, the answer is $14,400 U.
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