AirSoar Company produces model airplanes. During August, the company produced 1,000 planes. The actual labour hours were 10 hours per plane. The company's standard labour hours are 15 hours per plane. The standard labour rate is $12 per hour. At the end of August, AirSoar found that it had a favourable labour rate variance of $7,500.
-Refer to the Figure.What was AirSoar's actual cost per labour hour?
A)$11.25
B)$11.50
C)$12.50
D)$12.75

Question

Quizplus · Accepted Answer

To calculate the actual cost per labour hour, we need to use the formula:

Actual labour rate = (Actual labour cost / Actual labour hours)

We are given that the standard labour rate is $12 per hour. Since the labour rate variance is favourable, we know that the actual labour rate must be less than the standard labour rate.

Labour rate variance = (Standard labour rate - Actual labour rate) x Actual labour hours

$7,500 = ($12 - Actual labour rate) x 1,000 x 10
$7,500 = ($120,000 - 10,000Actual labour rate)
Actual labour rate = $11.25

Therefore, AirSoar's actual cost per labour hour is $11.25 (Option A).

AirSoar Company Produces Model Airplanes