The following information describes a company's usage of direct labor in a recent period: How much is the direct labor price variance?

Question

The following information describes a company's usage of direct labor in a recent period:  How much is the direct labor price variance?

Quizplus · Accepted Answer

The direct labor price variance is calculated by multiplying the difference between the actual and standard direct labor rate by the number of hours worked. Based on the information provided, we know that the actual direct labor rate was $28.50 per hour and the standard rate was $27. Therefore, the difference is $1.50 per hour. Multiplying this by the 55,000 hours of direct labor gives us a favorable variance of $82,500. However, the question asks for the direct labor price variance and not the direct labor rate variance. Therefore, we need to multiply the standard rate of $27 by the actual number of hours worked (55,000) and compare this to the actual cost of direct labor. Doing so gives us a total standard cost of $1,485,000 (55,000 hours x $27 per hour) and an actual cost of $1,573,000. The difference between these two amounts is $88,000 unfavorable (actual cost - standard cost), which is the answer.

The Following Information Describes a Company's Usage of Direct Labor