Question

A company predicted that it would manufacture 10,000 units of finished goods during March. The direct labor standards indicated that each unit of finished goods requires 2.4 direct labor hours at a standard wage of $20 per hour, totaling $48.00 per finished good unit. During March, the company actually made 9,000 units of finished goods. Production used 2.5 labor hours per finished unit, and the company actually paid $21 per hour, totaling $52.50 per unit of finished product. What amount is the company's direct labor rate variance for March?

Answer 1

Answer:

Direct Labor Rate Variance = $22,500 Unfavorable

Explanation:

Direct Labor Rate Variance = (Standard Rate Per hour - Actual Rate per hour) $\times$ Actual Hours

Here, Actual units = 9,000

Therefore standard hours = 9,000 $\times$ 2.4 = 21,600 hours

Actual hours = 9,000 $\times$ 2.5 = 22,500

Standard rate per hour = $20

Actual rate per hour = $21

Thus,

Direct Labor Rate Variance = ($20 - $21) $\times$ 22,500 = - $22,500

As the actual rate at which labor is paid are much higher than the standard rate the variance is unfavorable.

Direct Labor Rate Variance = $22,500 Unfavorable