A company uses the following standard costs to produce a single unit of output. During the latest month, the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400. Based on this information, the direct labor rate variance for the month was:
A) $1,200 favorable
B) $3,650 favorable
C) $2,450 favorable
D) $3,650 unfavorable
E) $1,200 unfavorable

Question

A company uses the following standard costs to produce a single unit of output.  During the latest month, the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400. Based on this information, the direct labor rate variance for the month was:
A) $1,200 favorable 
B) $3,650 favorable 
C) $2,450 favorable 
D) $3,650 unfavorable 
E) $1,200 unfavorable

Quizplus · Accepted Answer

Direct labor rate variance = (Actual rate - Standard rate) x Actual hours

The standard direct labor rate is $11.50 ($57,500 ÷ 5,000 hours). The actual direct labor rate is $11.50 ($56,350 ÷ 4,900 hours).

Therefore, the direct labor rate variance is:

($11.50 - $12.00) x 4,900 hours = $2,450 favorable

A Company Uses the Following Standard Costs to Produce a Single