Assume Martin Guitar Company has a standard of 3 hours of direct labor per unit produced and $20 per hour for the labor rate.During last period,the company used 24,000 hours of direct labor at a $456,000 total cost to produce 6,000 units.Compute the direct labor rate and efficiency variances.
A) Rate variance: $24,000 unfavorable; Efficiency variance: $120,000 favorable.
B) Rate variance: $24,000 favorable; Efficiency variance: $120,000 unfavorable.
C) Rate variance: $96,000 favorable; Efficiency variance: $96,000 unfavorable.
D) Rate variance: $120,000 favorable; Efficiency variance: $24,000 unfavorable.
E) Rate variance: $120,000 unfavorable; Efficiency variance: $24,000 unfavorable.

Question

Quizplus · Accepted Answer

Rate variance = (24,000 hours x $20) - $456,000 = $24,000 favorable
Efficiency variance = ($20 x 24,000 hours) - [$20 x (6,000 units x 3 hours)] = $120,000 unfavorable

Assume Martin Guitar Company Has a Standard of 3 Hours