Milar Corporation makes a product with the following standard costs: In January the company produced 2,000 units using 16,060 pounds of the direct material and 210 direct labor-hours. During the month, the company purchased 16,900 pounds of the direct material at a cost of $65,910. The actual direct labor cost was $4,473 and the actual variable overhead cost was $756.The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.The labor rate variance for January is:
A) $260 Unfavorable
B) $273 Unfavorable
C) $260 Favorable
D) $273 Favorable

Question

Milar Corporation makes a product with the following standard costs:  In January the company produced 2,000 units using 16,060 pounds of the direct material and 210 direct labor-hours. During the month, the company purchased 16,900 pounds of the direct material at a cost of $65,910. The actual direct labor cost was $4,473 and the actual variable overhead cost was $756.The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.The labor rate variance for January is:
A) $260 Unfavorable 
B) $273 Unfavorable 
C) $260 Favorable 
D) $273 Favorable

Quizplus · Accepted Answer

To calculate the labor rate variance, we need to first calculate the actual labor rate per hour:
Actual Labor Rate = Actual Labor Cost / Actual Hours
Actual Labor Rate = $4,473 / 210 hours
Actual Labor Rate = $21.30 per hour

Next, we need to calculate the standard labor rate per hour:
Standard Labor Rate = Standard Labor Cost / Standard Hours
Standard Labor Rate = $8.00 / 0.50 hours
Standard Labor Rate = $16.00 per hour

Finally, we can calculate the labor rate variance:
Labor Rate Variance = (Actual Hours x (Actual Labor Rate - Standard Labor Rate))
Labor Rate Variance = 210 hours x ($21.30 - $16.00)
Labor Rate Variance = 210 hours x $5.30
Labor Rate Variance = $1,113

Since the labor rate variance is unfavorable (the actual rate is higher than the standard rate), the answer is B) $273 Unfavorable.

Milar Corporation Makes a Product with the Following Standard Costs