Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked (AQ). The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour (SP).

Ally's direct labor rate variance for July, to the nearest dollar, was:
A) $2,000 unfavorable.
B) $4,000 unfavorable.
C) $20,000 favorable.
D) $22,000 unfavorable.
E) $26,000 unfavorable.

Question

Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked (AQ) . The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour (SP) .

Ally's direct labor rate variance for July, to the nearest dollar, was:

Ally's direct labor rate variance for July, to the nearest dollar, was: 
A) $2,000 unfavorable.
B) $4,000 unfavorable.
C) $20,000 favorable.
D) $22,000 unfavorable.
E) $26,000 unfavorable.

Quizplus · Accepted Answer

Standard direct labor cost per hour = $40.00
Actual direct labor cost per hour = $242,000 ÷ 5,500 hours = $44.00

The direct labor rate variance is:

AQ (actual quantity) x (AR - SR)

= 5,500 hours x ($44.00 - $40.00)

= $22,000 unfavorable.

Therefore, the correct answer is D.

Ally Mfg Uses a Standard Cost System and Its July Production