Figure 10-3Bortello Corporation produces high-quality leather boots. The company has a standard cost system and has set the following standards for materials and labor:
During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 1,500 hours at $15 per hour.
-Refer to Figure 10-3. Calculate the labor rate variance and the labor efficiency variance, respectively.
A) $4,500 U and $3,000 U
B) $4,500 F and $3,000 F
C) $4,500 U and $3,000 F
D) $4,500 F and $3,000 U

Question

Figure 10-3Bortello Corporation produces high-quality leather boots. The company has a standard cost system and has set the following standards for materials and labor:
  During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 1,500 hours at $15 per hour.
-Refer to Figure 10-3. Calculate the labor rate variance and the labor efficiency variance, respectively.
A) $4,500 U and $3,000 U 
B) $4,500 F and $3,000 F 
C) $4,500 U and $3,000 F 
D) $4,500 F and $3,000 U

Quizplus · Accepted Answer

The labor rate variance is calculated as the difference between the actual labor rate and the standard labor rate, multiplied by the actual hours worked. The labor efficiency variance is calculated as the difference between the actual hours worked and the standard hours allowed for the actual output, multiplied by the standard labor rate. In this case, the actual labor rate is $25 per hour, the standard labor rate is $20 per hour, the actual hours worked are 225 hours, and the standard hours allowed for the actual output are 200 hours. Therefore, the labor rate variance is $4,500 U (225 hours x ($25 - $20)) and the labor efficiency variance is $3,000 U (25 hours x $20).

Figure 10-3Bortello Corporation Produces High-Quality Leather Boots