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 total labour variance?
A)$52,500 F
B)$55,000 F
C)$65,000 F
D)$67,500 F

Question

Quizplus · Accepted Answer

To calculate the total labor variance, we need to calculate both the labor rate variance and the labor efficiency variance:

Labor rate variance = actual labor hours x (actual labor rate - standard labor rate)
= 10 x ($12 - $12) = $0

Labor efficiency variance = (actual labor hours - standard labor hours) x standard labor rate
= (10 - 15) x $12 = -$60

Total labor variance = labor rate variance + labor efficiency variance
= $0 + (-$60) = -$60

Since the labor rate variance is given as favorable in the question, it means that the actual labor rate was lower than the standard labor rate, resulting in a cost saving of $7,500. However, the labor efficiency variance is unfavorable, indicating that the company used more labor hours than expected to produce the 1,000 planes. Therefore, the total labor variance is unfavorable, and the answer is D) $67,500 F.

AirSoar Company Produces Model Airplanes