Bear Company uses a standard costing system. The following information pertains to direct labour costs for the month of March:
$$\begin{array} { l l }
\text { Standard direct labour rate per hour } & \$ 15.00 \
\text { Actual direct labour rate per hour } & \$ 13.50 \
\text { Labour rate vari ance } & \$ 18,000 \text { favourable } \
\text { Actual output } & 1,000 \text { units } \
\text { Standard hours allowed for actual production } & 10,000 \text { hours }
\end{array}$$
-Refer to the Figure.What is the total labour budget variance for Bear Company?
A)$12,000 (U)
B)$12,000 (F)
C)$18,000 (U)
D)$18,000 (F)

Question

Bear Company uses a standard costing system. The following information pertains to direct labour costs for the month of March:
 $$\begin{array} { l l } 
\text { Standard direct labour rate per hour } & \$ 15.00 \
\text { Actual direct labour rate per hour } & \$ 13.50 \
\text { Labour rate vari ance } & \$ 18,000 \text { favourable } \
\text { Actual output } & 1,000 \text { units } \
\text { Standard hours allowed for actual production } & 10,000 \text { hours }
\end{array}$$
-Refer to the Figure.What is the total labour budget variance for Bear Company?
A)$12,000 (U)
B)$12,000 (F)
C)$18,000 (U)
D)$18,000 (F)

Quizplus · Accepted Answer

The total labour budget variance is the difference between the actual labour costs and the standard labour costs. The actual labour costs are $13.50 per hour x 10,000 hours = $135,000. The standard labour costs are $15.00 per hour x 10,000 hours = $150,000. Therefore, the total labour budget variance is $150,000 - $135,000 = $15,000 favourable. However, the question states that the labour rate variance is $18,000 favourable. This means that the total labour budget variance must be $18,000 - $15,000 = $3,000 unfavourable.

Bear Company Uses a Standard Costing System -Refer to the Figure