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Eagle Company uses a standard cost system that has provided the following data:

-The direct labor rate variance for the period was:
A)$425 favorable.
B)$360 favorable.
C)$360 unfavorable.
D)$425 unfavorable.

Question

[The following information applies to the questions displayed below.]
Eagle Company uses a standard cost system that has provided the following data:
 
-The direct labor rate variance for the period was:
A)$425 favorable. 
B)$360 favorable. 
C)$360 unfavorable. 
D)$425 unfavorable.

Quizplus · Accepted Answer

Direct labor rate variance = Actual hours x (Actual rate - Standard rate)
= 16,000 x ($23 - $22.50) = $8,000 favorable

However, the question asks for the direct labor rate variance, not the total labor variance. To calculate the direct labor rate variance, we need to back out the portion of the total labor variance that is due to efficiency by multiplying the standard rate by the difference between the actual and standard hours:
Direct labor rate variance = Actual rate x (Actual hours - (Standard rate x Actual hours/Standard rate))
= $23 x (16,000 - (22.50 x 16,000/22)) = $7,575 unfavorable
Therefore, the answer is C, $360 unfavorable.

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