The Dexon Company makes and sells a single product called a Mip and uses a standard costing system. The following standards have been established for one unit of Mip: There were no inventories of any kind on August 1. During August, the following events occurred:
Purchased 15,000 board feet at the total cost of $24,000.
Used 12,000 board feet to produce 2,100 Mips.
Used 1,700 hours of direct labor time at a total cost of $20,060.
-To record the incurrence of direct labor cost and its use in production, the general ledger would include what entry to the Labor Rate Variance account?
A) $240 credit
B) $240 debit
C) $340 debit
D) $340 credit

Question

The Dexon Company makes and sells a single product called a Mip and uses a standard costing system. The following standards have been established for one unit of Mip:  There were no inventories of any kind on August 1. During August, the following events occurred:
  Purchased 15,000 board feet at the total cost of $24,000.
  Used 12,000 board feet to produce 2,100 Mips.
  Used 1,700 hours of direct labor time at a total cost of $20,060.
-To record the incurrence of direct labor cost and its use in production, the general ledger would include what entry to the Labor Rate Variance account?
A) $240 credit 
B) $240 debit 
C) $340 debit 
D) $340 credit

Quizplus · Accepted Answer

The Labor Rate Variance account is used to record the difference between the standard hourly rate and the actual hourly rate paid for direct labor. The standard hourly rate for Mip production is $11 per hour, so the total standard cost for the 1,700 hours of direct labor used in August would be 1,700 x $11 = $18,700. However, the actual cost of direct labor incurred was $20,060, which equates to an actual hourly rate of $11.80 ($20,060 ÷ 1,700 hours). The Labor Rate Variance account should be credited for the difference between the standard hourly rate and the actual hourly rate paid, multiplied by the actual hours of direct labor used (1,700). Therefore, the entry to the Labor Rate Variance account should be:
Labor Rate Variance account       $340 (credit)
     Accounts Payable or Cash           $20,060 (debit)

The Dexon Company Makes and Sells a Single Product Called