Question

Hassock Corp. produces woven wall hangings. It takes 4 hours of direct labor to produce a single wall hanging. Hassock’s standard labor cost is $12 per hour. During August, Hassock produced 18,000 units and used 72,130 hours of direct labor at a total cost of $863,560. What is Hassock’s labor rate variance for August?

Answer 1

Calculation of Labor rate variance

Labor rate variance = (Actual Hours X Actual Rate) - (Actual Hours X Standard Rate)

= $ 863,560 - ( 72,130 X $ 12)

= $ 863,560 - $ 865,560

= $ 2,000 Favorable

As actual cost is less than the standard cost, the variance is favorable.

Actual hour X Actual rate = Actual total direct labor cost = 863,560.

Therefore, Labor rate variance = 2,000