Assume that the standard cost to make one finished unit includes two hours of direct labor at $8 per hour. During April, 22,000 direct labor hours were worked, 10,500 units of product were manufactured, and total direct labor cost was $170,000. What is the (approximate) labor rate variance for April?

Question

Quizplus · Accepted Answer

First, we need to calculate the standard cost per unit for direct labor:

2 hours x $8/hour = $16 per unit

Next, we need to calculate the actual cost per unit for direct labor:

$170,000 ÷ 22,000 direct labor hours = $7.73 per hour
2 hours x $7.73/hour = $15.46 per unit

Now we can calculate the labor rate variance:

(Actual rate - Standard rate) x Actual hours

($7.73 - $8) x 22,000 = $-6,060

Since the actual rate is lower than the standard rate, this is an unfavorable variance. To approximate this answer, we round to the nearest thousand, giving us a labor rate variance of $6,000 unfavorable (option C).

Assume That the Standard Cost to Make One Finished Unit