Scotch Brand Products produces packaging tape and has determined the following to be its standard cost of producing one case of budget packaging tape: $$\begin{array} { l r }
\text { Material (3.50 ounces at } \$ 1.30 \text { per ounce) } & \$ 4.55 \
\text { Labor (0.30 hour at } \$ 12.00 \text { per hour) } & 3.60 \
\text { Overhead } & 2.20 \
\text { Total } & \$ 10.35
\end{array}$$ At the start of 2017, Scotch Brand planned to produce 80,000 cases of tape during the year.Overhead is allocated based on the number of cases of tape produced.Annual fixed overhead is budgeted at $56,000 and variable overhead costs are budgeted at $1.50 per case.The following information summarizes the results for 2017:
-Actual production, 75,000 cases
-Purchased 275,000 ounces of material at a total cost of $343,750
-Used 266,250 ounces of material in production
-Employees worked 22,000 hours, total labor cost $275,000
-Actual overhead incurred, $175,000
How much is the labor rate variance for 2017?
A)$6,000 favorable
B)$5,000 unfavorable
C)$24,000 favorable
D)$11,000 unfavorable

Question

Scotch Brand Products produces packaging tape and has determined the following to be its standard cost of producing one case of budget packaging tape: $$\begin{array} { l r } 
\text { Material (3.50 ounces at } \$ 1.30 \text { per ounce) } & \$ 4.55 \
\text { Labor (0.30 hour at } \$ 12.00 \text { per hour) } & 3.60 \
\text { Overhead } & 2.20 \
\text { Total } & \$ 10.35
\end{array}$$ At the start of 2017, Scotch Brand planned to produce 80,000 cases of tape during the year.Overhead is allocated based on the number of cases of tape produced.Annual fixed overhead is budgeted at $56,000 and variable overhead costs are budgeted at $1.50 per case.The following information summarizes the results for 2017:
-Actual production, 75,000 cases
-Purchased 275,000 ounces of material at a total cost of $343,750
-Used 266,250 ounces of material in production
-Employees worked 22,000 hours, total labor cost $275,000
-Actual overhead incurred, $175,000
How much is the labor rate variance for 2017?
A)$6,000 favorable
B)$5,000 unfavorable
C)$24,000 favorable
D)$11,000 unfavorable

Quizplus · Accepted Answer

The labor rate variance is calculated as the difference between the actual labor cost and the standard labor cost for the actual hours worked. The standard labor cost is $12.00 per hour. The actual labor cost is $275,000 for 22,000 hours, which results in an actual rate of $12.50 per hour ($275,000 / 22,000 hours). The variance is calculated as (Actual Rate - Standard Rate) * Actual Hours = ($12.50 - $12.00) * 22,000 = $0.50 * 22,000 = $11,000 unfavorable. This means the company spent $11,000 more on labor than it had planned.

Scotch Brand Products Produces Packaging Tape and Has Determined the Following