Welch Company budgeted the following cost standards for the current year: Direct materials = 1.40 kilograms per unit @ $1.50 per kilogram
Direct labour = 0.75 hours per unit @ $6 per hour
Actual production and costs were as follows:
Units produced = 2,800
Direct materials used = 4,500 kg.
Direct materials purchased = 5,000 kg. @ a cost of $5,850
Direct labour incurred = 2,000 hours at a cost of $13,000
The labour price variance was:
A)$600 F
B)$400 U
C)$4,800 F
D)$1,000 U

Question

Quizplus · Accepted Answer

To calculate the labour price variance, we need to first determine the standard cost of labour:

Standard cost of labour = Standard hours × Standard rate = 0.75 hours per unit × $6 per hour = $4.50 per unit

Then, we can calculate the actual cost of labour:

Actual cost of labour = Actual hours × Actual rate = 2,000 hours × ($13,000 ÷ 2,000 hours) = $6.50 per hour

Now we can calculate the labour price variance:

Labour price variance = Actual cost of labour - (Standard hours × Actual rate)
= $13,000 - (0.75 hours per unit × $6.50 per hour × 2,800 units)
= $13,000 - $13,650
= $650 U

Therefore, the labour price variance is $650 unfavorable, or $650 U. The closest answer choice is D, which is $1,000 U.

Welch Company Budgeted the Following Cost Standards for the Current