Extreme Builders constructs houses. The standard labor rate is $25 per hour and the standard number of hours is 15,000 hours per home. During the year, it constructed 12 homes using 18,000 labor hours per home and a rate of $28 per hour.
-Refer to Figure 10-6. Calculate the Extreme Builders' labor rate variance.
A) $540,000 U
B) $540,000 F
C) $648,000 U
D) $648,000 F

Question

Quizplus · Accepted Answer

Labor rate variance = (Actual labor rate - Standard labor rate) x Actual labor hours

For each home, the standard cost would be:

$25 x 15,000 = $375,000

The actual cost per home would be:

$28 x 18,000 = $504,000

Therefore, the labor rate variance per home would be:

($28 - $25) x 18,000 = $54,000

For 12 homes, the total labor rate variance would be:

$54,000 x 12 = $648,000 U (unfavorable)

Therefore, the correct answer is C.

Extreme Builders Constructs Houses