The standard rate for direct labor was established at $15 per hour at the beginning of the year at Rodriguez Inc. In September a new labor contract was negotiated that raised the rate to $18.50 per hour. Mr. Garcia, the controller, decided not to change the standard rate since the end of the year was relatively close and new standards would be developed, effective January 1.
During October 16,000 labor hours were used at an average cost of $19 per hour. The labor rate variance was $64,000 unfavorable. The production manager was understandably upset by this variance and wanted an explanation from Mr. Garcia.
Required:
(1) Assume you are Mr. Garcia. Explain to the production manager why the unfavorable rate variance was so high.
(2) In general, can variances be analyzed to separate out items that cannot be controlled from those that can be?

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The Answer of The standard rate for direct labor was established at $15 per hour at the beginning of the year at Rodriguez Inc. In September a new labor contract was negotiated that raised the rate to $18.50 per hour. Mr. Garcia, the controller, decided not to change the standard rate since the end of the year was relatively close and new standards would be developed, effective January 1.
During October 16,000 labor hours were used at an average cost of $19 per hour. The labor rate variance was $64,000 unfavorable. The production manager was understandably upset by this variance and wanted an explanation from Mr. Garcia.
Required:
(1) Assume you are Mr. Garcia. Explain to the production manager why the unfavorable rate variance was so high.
(2) In general, can variances be analyzed to separate out items that cannot be controlled from those that can be?

The Standard Rate for Direct Labor Was Established at $15