Lopata Manufacturing uses a standard cost system for its guitar boxes. The standard labor rate per box is $1 per box. This standard was established on the basis of producing 8 boxes per hour. This month, Lopata produced 1,500 boxes using 580 direct labor hours at an actual direct labor cost of $5,800. The direct labor rate variance was
A) $ 1,600 favorable
B) $ 1,160 favorable
C) $ 1,600 unfavorable
D) $ 1,160 unfavorable

Question

Quizplus · Accepted Answer

The direct labor rate variance is calculated as (Actual Hours Worked × Actual Rate) - (Actual Hours Worked × Standard Rate). Given that the actual direct labor cost is $5,800 for 580 hours, the actual rate is $5,800 / 580 = $10 per hour. The standard rate is $1 per box, and with a standard of 8 boxes per hour, the standard rate per hour is 8 boxes/hour × $1/box = $8/hour. Thus, the variance is (580 hours × $10/hour) - (580 hours × $8/hour) = $5,800 - $4,640 = $1,160 unfavorable.

Lopata Manufacturing Uses a Standard Cost System for Its Guitar