During October, 14,000 direct labour hours were worked at a standard cost of £40 per hour. If the labour rate variance for October was £70,000 favorable, the actual cost per labour hour must be
A) £35
B) £40
C) £45
D) none of the above

Question

Quizplus · Accepted Answer

Labour rate variance = (Actual hourly wage - Standard hourly wage) x Actual hours worked
£70,000 = (Actual hourly wage - £40) x 14,000
£70,000 = Actual hourly wage - £560,000
Actual hourly wage = £630,000/14,000 = £45
Actual cost per labour hour = Actual hourly wage + Labour rate variance/Actual hours worked
= £45 + (£70,000/14,000)
= £45 + £5
= £50
The actual cost per labour hour is not in the options given, so the closest choice is A) £35, which is the standard hourly wage.

During October, 14,000 Direct Labour Hours Were Worked at a Standard