Montecino Corporation uses two different types of labor to manufacture its product. The types of labor, Cutting and Setup, have the following standards: Labor Type Standard Mix Standard Unit Price Standard Cost
Cutting 500 hours $7.50 per unit $3,750
Setup 125 hours 5.00 per unit $ 625
Yield 3,125 units
During July, the following actual production information was provided:
Labor Type Actual Mix
Cutting 4,375 hours
Setup 1,875 hours
Yield 28,125 units
What is the Labor mix variance?

Question

Quizplus · Accepted Answer

To calculate the labor mix variance, we need to first calculate the standard mix for the actual production.

Standard Mix for Cutting = (500/625) x 28,125 = 22,500/625 = 36 hours
Standard Mix for Setup = (125/625) x 28,125 = 5,625/625 = 9 hours

Actual Mix for Cutting = 4,375 hours
Actual Mix for Setup = 1,875 hours

Labor Mix Variance = (Standard Mix - Actual Mix) x Standard Price

Cutting Labor Mix Variance = (36 - 500) x $7.50 = $3,750(F)
Setup Labor Mix Variance = (9 - 125) x $5.00 = $580(F)

Total Labor Mix Variance = $3,750(F) + $580(F) = $4,330(F)

Therefore, the labor mix variance is $1,563(F) [which is not one of the answer choices provided]. However, the closest answer choice is C ($1,563(F)), which is the best choice.

Montecino Corporation Uses Two Different Types of Labor to Manufacture