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 (F); 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 for the units produced.

How many units of the product were produced during the past month (rounded to the nearest whole number)?
A) 800.
B) 1,000.
C) 1,200.
D) 1,500.
E) 2,000.

Question

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 (F) ; 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 for the units produced.

How many units of the product were produced during the past month (rounded to the nearest whole number) ?

How many units of the product were produced during the past month (rounded to the nearest whole number)?
A) 800.
B) 1,000.
C) 1,200.
D) 1,500.
E) 2,000.

Quizplus · Accepted Answer

The direct labor rate variance is favorable, which means that the actual labor rate paid was lower than the standard rate. The direct labor efficiency variance is unfavorable, which means that more labor hours were used than the standard allowed. The total direct labor variance is the sum of the rate and efficiency variances, which is $20,000 unfavorable.The total direct labor cost is the sum of the actual labor cost and the direct labor variance. The actual labor cost is the product of the actual labor hours and the actual labor rate. The actual labor hours are the standard labor hours allowed plus the additional hours used. The actual labor rate is the standard labor rate plus the favorable rate variance.Substituting the given values into the equations, we get:Actual labor cost = (Standard labor hours + Additional hours) * (Standard labor rate + Favorable rate variance)Actual labor cost = (5 hours/unit + 25% * 5 hours/unit) * ($50/hour + $30,000/25,000 hours)Actual labor cost = 6.25 hours/unit * $51.20/hourActual labor cost = $320/unitTotal direct labor cost = Actual labor cost + Direct labor varianceTotal direct labor cost = $320/unit + $20,000Total direct labor cost = $340,000Units produced = Total direct labor cost / Standard labor cost per unitUnits produced = $340,000 / $250/unitUnits produced = 1,360 unitsRounding to the nearest whole number, the answer is 1,360 units.

Sheldon Company Manufactures Only One Product and Uses a Standard