Question

Galla Corporation makes a product with the following standard costs: 

	Standard Quantity or Hours	Standard Price or Rate	Standard Cost Per Unit
Direct materials	8.2 pounds	$7.00 per pound	$57.40
Direct labor	0.4 hours	$20.00 per hour	$8.00
Variable overhead	0.4 hours	$2.00 per hour	$0.80

The company budgeted for production of 2,400 units in June, but actual production was 2,500 units. The company used 19,850 pounds of direct material and 980 direct labor-hours to produce this output. The company purchased 21,700 pounds of the direct material at $6.70 per pound. The actual direct labor rate was $19.20 per hour and the actual variable overhead rate was $1.80 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 June is:

Answer 1

Answer

SR $ 20 per hour AH 980 hrs AR $ 19.20 per hr
Labour rate variance = Actual Time * (Standard Rate – Actual Rate)

    = 980 ($ 20- $ 19.20)

   = $ 784 (Favourable)