Question

Waterways Corporation uses very stringent standard costs in evaluating its manufacturing efficiency. These standards are not “ideal” at this point, but the management is working toward that as a goal. At present, the company uses the following standards.

Materials
Item	Per unit			Cost
Metal		1 lb.			63¢ per lb.
Plastic		12 oz.			$1.00 per lb.
Rubber		4 oz.			88¢ per lb.
Direct labor
Item	Per unit			Cost
Labor		15 min.			$9.00 per hr.
Predetermined overhead rate based on direct labor hours = $3.62

The January figures for purchasing, production, and labor are:

The company purchased 218,100 pounds of raw materials in January at a cost of 79¢ a pound.

Production used 218,100 pounds of raw materials to make 110,000 units in January.

Direct labor spent 18 minutes on each product at a cost of $8.80 per hour.

Overhead costs for January totaled $30,265 variable and $74,000 fixed.

What is the labor price variance? (Round per unit calculations to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 125.)

Labor price variance

$

Neither favorable nor unfavorableUnfavorableFavorable

Answer 1

Answer

• Requirement: Labor Price Variance
  = $ 6600 Favourable

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                9.00	-	$                       8.80	)	x	33000
	6600
	Variance		$              6,600.00			Favourable-F

--Actual labor hours = (110000 units x 18 min) / 60 min = 33000 hours