Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,000 unfavorable.Direct labor efficiency variance = $70,000 (?)The standard calls for 3 direct labor hours per unit of output at $28 per labor hour.The standard direct labor hours for the units manufactured is 20 percent more than the total direct labor hours actually worked in August.What were the total standard hours allowed for the units manufactured in August?
A)10,000.
B)12,000.
C)12,500.
D)15,000.
E)15,625.

Question

Quizplus · Accepted Answer

To begin solving this problem, we need to know the formulas for calculating direct labor rate variance and direct labor efficiency variance:

Direct labor rate variance = (Actual Rate - Standard Rate) x Actual Hours

Direct labor efficiency variance = (Actual Hours - Standard Hours) x Standard Rate

From the given information, we know that the direct labor rate variance is $25,000 unfavorable. This means that the actual rate paid for labor was higher than the standard rate.

Next, we need to solve for the direct labor efficiency variance. We are given the following information:

- Standard labor rate = $28 per hour 
- Standard labor hours per unit = 3 hours 
- Actual labor hours worked = ? 
- Standard labor hours for units manufactured = 20% more than actual labor hours worked

Let X be the actual labor hours worked in August.

The total units manufactured can be calculated by dividing the total actual labor hours worked by 3 (the standard labor hours per unit):

Total units = X / 3

The standard labor hours for the units manufactured is 20% more than the total actual labor hours worked:

Standard hours = X + 0.2X = 1.2X

Now we can set up the equation for the direct labor efficiency variance:

Direct labor efficiency variance = (Actual Hours - Standard Hours) x Standard Rate

Plugging in the given information and solving for X:

$70,000 = (X - 1.2X) x $28 
$70,000 = (-0.2X) x $28 
X = - $70,000 / ($28 x -0.2) 
X = 12,500

Therefore, the total standard hours allowed for the units manufactured in August is 1.2 times X, or 15,000.

The answer is D (15,000).

Joe Malay Received the Following Report on the Division's Operation