The Fantastic Tool Company (Mexico Division) produced 100,000 saw blades during the year. Each saw blade required two hours of labour at a rate of $5.50 per hour. However, the company's standard labour rate is $5.00. Its labour efficiency variance was a favourable $55,000.
-Refer to the Figure.What is Fantastic's labour rate variance?
A)$95,000 U
B)$96,875 U
C)$100,000 U
D)$105,500 U

Question

Quizplus · Accepted Answer

To calculate the labour rate variance, we need to use the formula:

Labour rate variance = (Actual rate - Standard rate) x Actual hours

Actual rate = $5.50
Standard rate = $5.00
Actual hours = 100,000 saw blades x 2 hours per blade = 200,000 hours

Labour rate variance = ($5.50 - $5.00) x 200,000 = $100,000 U

Therefore, the labour rate variance is $100,000 U, which is option C.

The Fantastic Tool Company (Mexico Division) Produced 100,000 Saw Blades