Sheldon Company manufactures only one product and uses a standard cost system. During the past month, manufacturing operations for the company had the following variances: direct labor rate variance = $30,000 favorable; direct labor efficiency variance = $50,000 unfavorable. Sheldon allows 5 standard direct labor hours per unit produced, and its standard direct labor hourly pay rate is $50. During the month, the company used 25% more direct labor hours than the standard allowed.
What was the actual hourly rate (AP) for direct labor, rounded to two decimal places?
A) $30.00.
B) $36.00.
C) $44.00.
D) $50.00.
E) $56.00.

Question

Quizplus · Accepted Answer

The direct labor rate variance is calculated as (Standard Rate - Actual Rate) x Actual Hours. Given a $30,000 favorable variance, the actual rate must be lower than the standard rate. Using the formula, we can solve for the actual rate: $50 - AP = $30,000 / Actual Hours. Since the company used 25% more hours than standard, Actual Hours = 1.25 x Standard Hours. Solving gives AP = $44.00.

Sheldon Company Manufactures Only One Product and Uses a Standard