Saxena Corporation makes a product that has the following direct labor standards: The company budgeted for production of 2,900 units in July, but actual production was 2,800 units. The company used 250 direct labor-hours to produce this output. The actual direct labor rate was $14.10 per hour.The labor rate variance for July is:
A) $252 Unfavorable
B) $225 Unfavorable
C) $225 Favorable
D) $252 Favorable

Question

Saxena Corporation makes a product that has the following direct labor standards:  The company budgeted for production of 2,900 units in July, but actual production was 2,800 units. The company used 250 direct labor-hours to produce this output. The actual direct labor rate was $14.10 per hour.The labor rate variance for July is:
A) $252 Unfavorable 
B) $225 Unfavorable 
C) $225 Favorable 
D) $252 Favorable

Quizplus · Accepted Answer

First, calculate the standard hours allowed for the actual production:

2,800 units x 2.1 hours per unit = 5,880 standard hours allowed

Then, calculate the actual labor cost incurred:

250 actual hours x $14.10 actual rate = $3,525 actual cost

Next, calculate the standard labor cost for the actual production:

5,880 standard hours allowed x $12.50 standard rate = $73,500 standard cost

Finally, calculate the labor rate variance:

Actual cost - (Standard rate x Actual hours) = $3,525 - ($12.50 x 250) = $3,525 - $3,125 = $400 favorable

Therefore, since the actual direct labor rate was less than the standard direct labor rate, the labor rate variance is favorable, and the correct choice is option C.

Saxena Corporation Makes a Product That Has the Following Direct