Direct labor standards at Cepeda Manufacturing Corporation allow 5 direct labor-hours for every unit produced. The standard direct labor rate is $12.00 per hour. During the month of February, Cepeda incurred 35,000 direct labor-hours and recorded a $15,000 favorable labor efficiency variance. How many units did Cepeda produce during February?
A) 6,750
B) 7,250
C) 33,750
D) 36,250

Question

Quizplus · Accepted Answer

First, calculate the standard labor cost per unit: 
Standard labor cost per unit = 5 DLH x $12.00 per DLH = $60.00 per unit

Next, use the labor efficiency variance formula to calculate the actual units produced: 
Labor efficiency variance = (Actual Hours - Standard Hours) x Standard Rate 
-$15,000 = (35,000 - Standard Hours) x $12.00 
-($15,000/$12.00) = 35,000 - Standard Hours 
-1,250 = 35,000 - Standard Hours 
Standard Hours = 35,000 + 1,250 = 36,250

Finally, use the total actual labor-hours incurred to calculate the actual units produced: 
Actual Units Produced = Actual Hours / Standard Hours per Unit 
Actual Units Produced = 35,000 / 5 = 7,000

Therefore, the best choice is B (7,250 units), since the nearest option is the closest to the actual units produced.

Direct Labor Standards at Cepeda Manufacturing Corporation Allow 5 Direct