Action Enterprises recently used 14,000 labor hours to produce 7,500 completed units. According to manufacturing specifications, each unit is anticipated to take two hours to complete. The company's actual payroll cost amounted to $158,200. If the standard labor cost per hour is $11, Action's labor rate variance is:
A) $4,200U.
B) $4,000F.
C) $4,300U.
D) $4,300F.
E) None of the answers is correct.

Question

Quizplus · Accepted Answer

The labor rate variance is calculated as (Actual Hours Worked x Actual Rate) - (Actual Hours Worked x Standard Rate). Given that the actual payroll cost is $158,200 and 14,000 hours were worked, the actual rate per hour is $158,200 / 14,000 = $11.30. The standard rate is $11 per hour. Therefore, the labor rate variance is (14,000 x $11.30) - (14,000 x $11) = $158,200 - $154,000 = $4,200 unfavorable, because the actual rate is higher than the standard rate.

Action Enterprises Recently Used 14,000 Labor Hours to Produce 7,500