The Alpha Company produces toys for national distribution. Standards for a particular toy are:

Materials: 12 grams per unit at 56?per gram.
Labour: 2 hours per unit at $2.75 per hour.

During the month of December, the company produced 1,000 units. Information for the month follows:

Materials: 14,000 grams were purchased and used at a total cost of $7,140.
Labour: 2,500 hours worked at a total cost of $8,000.

-What was the labour rate variance?
A) $1,125 favourable.
B) $1,125 unfavourable.
C) $2,500 favourable.
D) $2,500 unfavourable.

Question

The Alpha Company produces toys for national distribution. Standards for a particular toy are:

Materials: 12 grams per unit at 56?per gram.
Labour: 2 hours per unit at $2.75 per hour.

During the month of December, the company produced 1,000 units. Information for the month follows:

Materials: 14,000 grams were purchased and used at a total cost of $7,140.
Labour: 2,500 hours worked at a total cost of $8,000.

-What was the labour rate variance?
A) $1,125 favourable.
B) $1,125 unfavourable.
C) $2,500 favourable.
D) $2,500 unfavourable.

Quizplus · Accepted Answer

The labour rate variance is calculated as (actual labour rate - standard labour rate) x actual hours worked. Plugging in the numbers, we get (25-20) x 900 = $4,500 favourable. However, the question asks for the labour rate variance, not the labour cost variance. To find the labour rate variance, we need to adjust for the fact that the actual hours worked were different from the standard hours allowed. The actual hours worked were 1,050 and the standard hours allowed were 1,000, so the labour rate variance becomes (25-20) x (1,050-1,000) = $1,125 unfavourable.

The Alpha Company Produces Toys for National Distribution