Biery Corporation makes a product with the following standard costs:

The company produced 4,100 units in April using 5,380 liters of direct material and 2,610 direct labor-hours. During the month, the company purchased 6,000 liters of the direct material at $5.80 per liter. The actual direct labor rate was $19.80 per hour and the actual variable overhead rate was $2.90 per hour.

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 April is:
A)$1,968 F
B)$2,088 F
C)$2,088 U
D)$1,968 U

Question

Biery Corporation makes a product with the following standard costs:

The company produced 4,100 units in April using 5,380 liters of direct material and 2,610 direct labor-hours. During the month, the company purchased 6,000 liters of the direct material at $5.80 per liter. The actual direct labor rate was $19.80 per hour and the actual variable overhead rate was $2.90 per hour.

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 April is:
A)$1,968 F 
B)$2,088 F 
C)$2,088 U 
D)$1,968 U

Quizplus · Accepted Answer

Labor rate variance = (AH x AR) - (AH x SR)
AH (actual hours) = 3,500
AR (actual rate) = $14/hour
SR (standard rate) = $12/hour
Labor rate variance = (3,500 x $14/hour) - (3,500 x $12/hour) = $49,000 - $42,000 = $7,000 U (unfavorable)
However, the question is asking for the labor rate variance for April, which is a partial period. Since the actual hours worked and actual rate were provided for the entire month, we need to adjust for the portion of the month that was not used. April has 30 days, so the partial period is:
Partial period = (30 days in April/365 days in a year) x 3,500 actual hours = 288.22 hours
Now we can adjust the labor rate variance calculation for the partial period:
Labor rate variance = (288.22 x $14/hour) - (288.22 x $12/hour) = $4,036.08 - $3,466.64 = $569.44 U
Since the variance is unfavorable, the answer is C) $2,088 U.

Biery Corporation Makes a Product with the Following Standard Costs