Ortman Corporation makes a product with the following standard costs:

The company reported the following results concerning this product in May.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
-The labor rate variance for May is:
A)$1,008 F
B)$981 U
C)$981 F
D)$1,008 U

Question

Ortman Corporation makes a product with the following standard costs:

The company reported the following results concerning this product in May.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
-The labor rate variance for May is:
A)$1,008 F 
B)$981 U 
C)$981 F 
D)$1,008 U

Quizplus · Accepted Answer

The labor rate variance is calculated as (actual rate - standard rate) x actual hours. 
Given: 
Actual rate = $13.50 
Standard rate = $12.00 
Actual hours = 6,800

Therefore, the labor rate variance = ($13.50 - $12.00) x 6,800 = $10,200 F 
Since the variance is favorable, we need to choose the option that represents a favorable variance, which is C ($981 F)

Ortman Corporation Makes a Product with the Following Standard Costs