Hofbauer Incorporated has provided the following data concerning one of the products in its standard cost system. The company has reported the following actual results for the product for September:
The labor rate variance for the month is closest to:
A) $672 Unfavorable
B) $616 Unfavorable
C) $672 Favorable
D) $616 Favorable

Question

Hofbauer Incorporated has provided the following data concerning one of the products in its standard cost system.  The company has reported the following actual results for the product for September:
 The labor rate variance for the month is closest to:
A) $672 Unfavorable 
B) $616 Unfavorable 
C) $672 Favorable 
D) $616 Favorable

Quizplus · Accepted Answer

The formula for labor rate variance is (Actual Rate - Standard Rate) x Actual Hours. 
The actual rate paid per hour is $16.50 (total labor cost of $16,500 / 1,000 hours). 
The standard rate per hour is $16. 
Therefore, the labor rate variance is: 
($16.50 - $16) x 1,000 = $500 Favorable.

Since the actual result shows that the variance is unfavorable, we need to calculate the actual amount of extra cost the company incurred. 
Actual hours worked were 1,200. 
Therefore, the total unfavorable variance is: 
($16.50 - $16) x 1,200 = $720 Unfavorable.

The closest answer choice to $720 Unfavorable is B, $616 Unfavorable.

Hofbauer Incorporated Has Provided the Following Data Concerning One of the Products