The Costmore Company uses standard costing and has established the following standards for direc materials and direct labor for each unit it makes:
$\begin{array}{ll}
\text { Direct Materials } & 3 \text { gallons at } \$ 5 \text { per gallon } \
\text { Direct Labor } & 1 \text { hour at } \$ 12 \text { per hour }
\end{array}$
During July, the company made 4,000 units of product and used 13,000 gallons. The actual price paid for materials was $5.20 per gallon.
Direct Labor used was 3,600 hours and workers were paid $11.75 per hour. An analysis would indicate

Question

Quizplus · Accepted Answer

AThe labor rate variance is calculated as the difference between the actual rate paid and the standard rate, multiplied by the actual hours worked. Here, the actual rate is $11.75 per hour, and the standard rate is $12 per hour. The actual hours worked are 3,600 hours. Thus, the labor rate variance is (12 - 11.75) * 3,600 = $900 favorable, because the actual rate paid is less than the standard rate, leading to a cost saving.

The Costmore Company Uses Standard Costing and Has Established the Following