Midgley Corporation makes a product whose direct labor standards are 0.8 hours per unit and $22.00 per hour. In April the company produced 6,900 units using 5,250 direct labor-hours. The actual direct labor cost was $113,925. The labor rate variance for April is:
A)$1,575 U
B)$1,656 F
C)$1,575 F
D)$1,656 U

Question

Quizplus · Accepted Answer

First, we need to calculate the standard direct labor cost for the units produced in April:
0.8 hours per unit x $22.00 per hour = $17.60 per unit

Then, we can calculate the total standard direct labor cost for the actual labor-hours worked:
5,250 actual labor-hours x $17.60 per unit = $92,400

The actual direct labor cost was given as $113,925, so we can calculate the labor rate variance as follows:

Labor rate variance = Actual direct labor cost - (Actual labor-hours x Standard labor rate)
Labor rate variance = $113,925 - (5,250 x $22.00)
Labor rate variance = $113,925 - $115,500
Labor rate variance = -$1,575 (which is unfavorable, or F)

Therefore, the correct answer is C) $1,575 F.

Midgley Corporation Makes a Product Whose Direct Labor Standards Are