Melrose Inc. uses standard costing. Last period, it spent $145,000 for labor. The direct labor rate variance was $5,000 favorable, and the direct labor efficiency variance was $6,000 unfavorable. In the journal entry to record the use of direct labor, the amount debited to cost of goods sold would be:
A) $144,000.
B) $145,000.
C) $150,000.
D) $151,000.

Question

Quizplus · Accepted Answer

The direct labor rate variance is favorable, which means that the actual labor rate was lower than the standard labor rate. The direct labor efficiency variance is unfavorable, which means that the actual labor hours used were more than the standard labor hours allowed. The amount debited to cost of goods sold would be the actual labor cost, which is $145,000.