Montana Company uses a standard costing system. The following information pertains to direct labor costs for the month of February: Standard direct labor rate per hour $15.00
Actual direct labor rate per hour $13.50
Labor rate variance $18,000 favorable
Actual output 1,000 units
Standard hours allowed for actual production 10,000 hours
How many actual labor hours were worked during February for Montana Company?
A) 10,000
B) 12,000
C) 1,200
D) 2,000

Question

Quizplus · Accepted Answer

The labor rate variance is favorable, meaning the actual rate paid was lower than the standard rate. Therefore, the actual labor hours worked should be higher than the standard hours allowed for actual production. 
Labor rate variance = (Actual rate - Standard rate) x Actual hours
$18,000 = ($13.50 - $15.00) x Actual hours
Actual hours = $18,000 / ($13.50 - $15.00) = 12,000 hours.

Montana Company Uses a Standard Costing System