Lucky Company's direct labor information for the month of February is as follows:$\begin{array}{lr}
\text { Actual direct labor hours worked (AQ) } & 61,500 \
\text { Standard direct labor hours allowed (SQ) } & 63,000 \
\text { Total payroll for direct labor } & \$ 774,900 \
\text { Direct labor efficiency variance } & \$ 18,000
\end{array}$The total standard direct labor cost allowed for February, rounded to the nearest dollar, was:
A) $738,000.
B) $747,000.
C) $756,000.
D) $765,000.
E) $774,900.

Question

Quizplus · Accepted Answer

The direct labor efficiency variance formula is: $ \text{Efficiency Variance} = (AQ - SQ) \times SR $, where AQ is the actual quantity of labor hours, SQ is the standard quantity of labor hours allowed, and SR is the standard rate per hour. Given that the efficiency variance is $18,000 and the actual hours worked (AQ) are less than the standard hours allowed (SQ) by 1,500 hours (63,000 - 61,500), we can deduce that the company was more efficient than expected. To find the total standard direct labor cost allowed, we first need to calculate the standard rate (SR) using the efficiency variance formula rearranged: $ SR = \frac{\text{Efficiency Variance}}{SQ - AQ} = \frac{18,000}{1,500} = 12 $ dollars per hour. Then, the total standard direct labor cost allowed is $ SQ \times SR = 63,000 \times 12 = 756,000 $.

Lucky Company's Direct Labor Information for the Month of February