Question

t24

Milar Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate
Direct materials		6.0	pounds	$	5.50	per pound
Direct labor		0.8	hours	$	24.00	per hour
Variable overhead		0.8	hours	$	11.00	per hour

In January the company produced 3,350 units using 13,400 pounds of the direct material and 2,800 direct labor-hours. During the month, the company purchased 16,900 pounds of the direct material at a cost of $14,160. The actual direct labor cost was $66,796 and the actual variable overhead cost was $29,508.

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 January is:

Multiple Choice

• $404 F

• $404 U

• $2,476 U

• $2,476 F

Answer 1

Answer

a. $ 404F

Calculations:

Standard rate	$          24.00
Standard hours	2,680.00
Actual rate (66796/2800)	$          23.86
Actual hours	2,800.00

Formula

Labor rate Variance = (Standard rate-Actual rate )*Actual hours

Labor rate Variance = (24-23.86)*2800

Labor rate Variance = 404 (F)

In case of any doubt, please comment.