assume that the standard cost to make one finished unit includes 1 hour of direct labor at $4 per hour. during october, 11,000 direct labor-hours were worked, 5,250 units of product were manufactured, and total direct labor cost was $40,000. what is the labor rate variance for october?

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01-12-2022
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assume that the standard cost to make one finished unit includes 1 hour of direct labor at $4 per hour. during october, 11,000 direct labor-hours were worked, 5,250 units of product were manufactured, and total direct labor cost was $40,000. what is the labor rate variance for october?

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ayune ayune · Answer 1 · 2022-12-07T00:58:46+01:00

The labor rate variance for October is $39,820 and it is an unfavorable variance.

The labor rate variance is the difference between the actual rate and predicted labor costs. It is computed by

Labor rate variance = (Actual rate - Standard rate) x Actual hours

An unfavorable variance means that the cost of labor was higher than expected, whereas a favorable variance suggests that the cost of work was lower than planned. This data can be used in the establishment of future budgets for planning purposes.

Parameters given in the problem:

standard rate = $4 per hour

actual hours = 11,000

Since one finished unit needs 1 hour of direct labor, then

actual rate = $40,000/5,250 = $7.62 per hour

Hence,

Labor rate variance = (7.62 - 4) x 11,000 = $39,820

Since the actual rate is higher than the standard rate, the variance is unfavorable.

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