Serenity Equestrian Corporation produces high-quality leather saddles. The company has a standard cost system and has set the following standards for materials and labour:
During the year, Serenity Equestrian Corporation produced 150 saddles. Actual leather purchased was 3,100 strips at $12 per strip. There were no beginning or ending inventories of leather. Actual direct labour was 2,500 hours at $16 per hour.
$\begin{array}{lll}
\text {Leather (20 strips@ $ \$ 15 $ per strip)}&\$300\
\text {Direct labour ( 15 hours $ @ \$ 15 $ per hour) }&225\
\text {Total prime cost }&\$252\
\end{array}$

-Refer to the Figure.What are the labour rate variance and the labour efficiency variance,respectively?
A)$2,250 U and $4,000 U
B)$2,250 F and $4,000 F
C)$2,500 U and $3,750 U
D)$2,500 F and $3,750 F

Question

Serenity Equestrian Corporation produces high-quality leather saddles. The company has a standard cost system and has set the following standards for materials and labour:
During the year, Serenity Equestrian Corporation produced 150 saddles. Actual leather purchased was 3,100 strips at $12 per strip. There were no beginning or ending inventories of leather. Actual direct labour was 2,500 hours at $16 per hour.
 $\begin{array}{lll}
\text {Leather (20 strips@ $ \$ 15 $ per strip)}&\$300\
\text {Direct labour ( 15 hours $ @ \$ 15 $ per hour) }&225\
\text {Total prime cost  }&\$252\
\end{array}$

-Refer to the Figure.What are the labour rate variance and the labour efficiency variance,respectively?
A)$2,250 U and $4,000 U
B)$2,250 F and $4,000 F
C)$2,500 U and $3,750 U
D)$2,500 F and $3,750 F

Quizplus · Accepted Answer

The labour rate variance is calculated as (Actual Rate - Standard Rate) * Actual Hours = ($16 - $15) * 2,500 = $2,500 Unfavorable. The labour efficiency variance is calculated as (Actual Hours - Standard Hours) * Standard Rate = (2,500 - (150 * 15)) * $15 = 2,500 - 2,250 = 250 hours * $15 = $3,750 Unfavorable.

Serenity Equestrian Corporation Produces High-Quality Leather Saddles -Refer to the Figure