In: Accounting
Lavender Company produces several products in its factory, including a karate robe. The company uses a standard cost system. According to the standards that have been set for the robes, the factory should work 780 direct labor hours eac month and produce 1,950 robes. Certain standard costs associated with this level of production are as follows: Direct labor $7,020 $3.60 Variable manufacturing overhead (based on DLH) $2,340 $1.20 During April, the factory worked 760 direct labor hours and produced 2,000 robes. The following certain actual costs were recorded during the month Total Variable manufacturing overhead $3,800 $1.90 Spending variance for Direct Labor: 400.00 $ unfavorable 4 The labor rate variance is: A. 760 $ unfavorable B. 760 $ favorable C. 360 $ favorable D. 360 $ unfavorable E. None of the above
In the question, it is provided Spending Variance for Direct Labor.
Labor Rate variance is nothing but the (Spending Variance for Direct Labor - Labour efficiency variance.)
= $400 unfavorable - ( 0.4 hours x 2000 units - 760 hours ) x $ 9 per hour
= $ 400 unfavorable - $ 360
= $ 760 unfavorable
Therefore, Labor Rate variance is $760 unfavorable.
Therefore, the labor rate variance is Option A, $760 unfavorable.
Calculations:
Standard labor hours = 780 direct labor hours
Output = 1950 robes
Direct labour hour per robe = 0.4 hour per robe ( 780/1950)
Standard Direct Labor rate = $3.60 per robe = $9 per direct labour hour ($3.60 / 0.4 hours)
Actual no. of hours worked = 760 direct labor hours
Actual no. of units produced = 2000 robes
Labor efficiency variance = (Standard Hours for actual output - Actual hours worked) x Labour rate per hour
= (2000 units x 0.4 standard hours - 760 hours) x $9 per labor hour
= (800 - 760) x $9 = $360
Hope this is helpful!!