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

Quizplus · Accepted Answer

First, we need to calculate the standard cost per hour of direct labor (DL rate per hour):
DL rate per hour = Total standard DL cost / Total standard DL hours
 DL rate per hour = ($56,350/4,900) = $11.50/hour

Next, we can calculate the actual hours of direct labor (AH DL):
AH DL = Actual output x Standard hours per unit
AH DL = 10,000 x 0.5 hours per unit
AH DL = 5,000 hours

Then, we can calculate the actual cost of direct labor (AC DL):
AC DL = AH DL x Actual DL rate per hour
AC DL = 5,000 x $11.50
AC DL = $57,500

Finally, we can calculate the direct labor rate variance (DL rate variance):
DL rate variance = (Actual DL rate per hour - Standard DL rate per hour) x Actual DL hours
DL rate variance = ($11.50 - $12) x 5,000
DL rate variance = -$2,500 (Favorable)

Therefore, the answer is C) $2,450 favorable.

A Company Uses the Following Standard Costs to Produce a Single