Question

29) The Tulip Company makes mugs for which the following standards have been developed:

                               Standard Inputs Expected                   Standard Price Expected

                                 For Each Unit of Output                              Per Unit of Input

Direct Materials                                 5 ounces                                     $2 per ounce

Direct Labor                                     2.5 hours                                       $8 per hour

Production of 400 mugs was expected in August, but 440 mugs were actually completed. Direct materials purchased and used were 2,100 ounces at an actual price of $2.20 per ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was $9.00. What is the direct labor price variance for August?

A) $420 Favorable

B) $420 Unfavorable

C) $590 Favorable

D) $590 Unfavorable this is correct. please explain why

Answer 1

Direct labour price variance

Direct labour price variance is the difference between standard rate per hour and actual rate paid per labour hour for actual labour hours worked.

The formula being used to calculate labor rate variance is:

(Standard rate - Actual rate) * Actual hours worked

Thus, we need to first calculate actual hours worked from the given information.

Actual pay per hour - $9.00 per hour

Actual labour cost - $5310

Therefore, actual labour hours will be -

= Actual labour cost / actual pay per hour

= $5310 / $9.00

= 590 hours

Now, we can compute labor price/rate variance by using the above mentioned formula,

Standard price - $8.00 per hour

Actual price -$9.00 per hour

Actual labor hours - 590

= (8.00 - 9.00) * 590

= $ 590 unfavorable

Note: As the actual price paid per labour hour is more than standard price per labour hour, the variance is unfavorable. It is because, the price paid actually is more than the standard set.

Thank you!