The Fime Corporation uses a standard costing system. The following data have been assembled for December: The standard hours allowed for December's production is:
A) 5,100 hours
B) 5,400 hours
C) 5,700 hours
D) 6,000 hours

Question

The Fime Corporation uses a standard costing system. The following data have been assembled for December:  The standard hours allowed for December's production is:
A) 5,100 hours 
B) 5,400 hours 
C) 5,700 hours 
D) 6,000 hours

Quizplus · Accepted Answer

Standard cost per unit of product = $40 per hour x 0.4 hour per unit = $16 per unit
Actual production = 1,400 units
Standard cost per unit x actual production = $16 x 1,400 = $22,400
Actual cost of labor for December = $23,130
Variances:
Labor rate variance = ($23,130 - (1,500 x $15)) = $630 U
Labor efficiency variance = (1,400 units x 0.4 hour per unit) - actual hours worked = 100 hours U
Total labor variance = $630 U + 100 hours U x $40 per hour = $7,630 U

To calculate the standard hours allowed, we need to add the actual hours worked to the labor efficiency variance:
Actual hours worked + labor efficiency variance = 4,500 + 100 = 4,600 hours
Therefore, the standard hours allowed for December's production is 5,400 hours (4,600 actual hours worked + 800 labor efficiency variance hours).

The Fime Corporation Uses a Standard Costing System