Question

Daytime Company’s direct labor cost for February is as follows:

Actual direct labor hours 69,000

Total direct labor payroll $483,000

Efficiency variance $ 6,400 F

Rate variance $ 41,400 U

What were the standard direct labor hours?

A. 72,000

B. 71,400

C. 70,000

D. 69,000

Answer 1

Correct answer------------(C) 70,000

Working

For calculating standard hours we need to first calculate standard rate.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    6.40	-	$                     7.00	)	x	69000
	-41400
	Variance		$           41,400.00			Unfavourable-U

We know that rate variance is $41400 U. It means the standard rate is lower than actual rate.

The standard rate will be (41400/69000) = 0.60 lower than actual rate

The standard rate becomes (7-.60) = 6.40

.

Now we can calculate standard hours

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	70000	-	69000	)	x	$              6.40
	6400
	Variance		$             6,400.00			Favourable-F

Standard hours = Actual hours + (Labor efficiency variance / standard rate)

Standard hours = 69000+(6400/6.4)

Standard hours = 69000+1000

Standard hours = 70000 hours