Figure 10-8. The Perfect Tool Company (South America Division)produced 80,000 saw blades during the year.It took 1.5 hours of labor per blade at a rate of $8.50 per hour.However,its standard labor rate is $8.00.Its labor efficiency variance was an unfavorable $40,000.
Refer to Figure 10-8.What is the journal entry to record both labor variances?

Question

Quizplus · Accepted Answer

The correct answer is A because it correctly records the labor variances and the accrued payroll. The labor rate variance is unfavorable because the actual labor rate ($8.50) is higher than the standard labor rate ($8.00). The labor efficiency variance is also unfavorable because it took more hours to produce the saw blades than the standard allowed. The total labor variance is $60,000 ($40,000 + $20,000). The accrued payroll is $1,020,000 (80,000 blades x 1.5 hours per blade x $8.50 per hour).