Accurate Tax Returns budgets two direct labor hours for every tax return that it prepares,at a standard cost of $32 an hour.During the most recent year,540 returns were completed with the labor cost totaling $24,000.The actual labor cost was $44.44 per hour during that period.The actual number of labor hours was 1000.What is the direct labor cost variance?
A)$6720 F
B)$32,000 U
C)$12,440 U
D)$32,000 F

Question

Quizplus · Accepted Answer

First, we need to calculate the standard direct labor cost:

Standard direct labor cost = Number of tax returns * Budgeted direct labor hours per tax return * Standard cost per hour
Standard direct labor cost = 540 * 2 * $32
Standard direct labor cost = $34,560

Next, we need to calculate the actual direct labor cost:

Actual direct labor cost = Actual direct labor hours * Actual cost per hour
Actual direct labor cost = 1000 * $44.44
Actual direct labor cost = $44,440

Now, we can calculate the direct labor cost variance:

Direct labor cost variance = Actual direct labor cost - Standard direct labor cost
Direct labor cost variance = $44,440 - $34,560
Direct labor cost variance = $9,880

Since the actual direct labor cost is greater than the standard direct labor cost, this is an unfavorable variance, so we need to report the magnitude of the variance as a positive amount. Therefore, the answer is C) $12,440 U (unfavorable variance).

Accurate Tax Returns Budgets Two Direct Labor Hours for Every