Cox Engineering performs cement core tests in its laboratory. The following stan
ID: 2435374 • Letter: C
Question
Cox Engineering performs cement core tests in its laboratory.The following standards have been set for each core test performed:
Direct materials
* Standard hours/quantity 3 pounds
* Standard price/rate $0.75 per pound
Direct labor
* Standard hours/quantity 0.4 hours
* Standard price/rate $12 per hour
Variable manufacturing overhead
* Standard hours/quantity 0.4 hours
* Standard price/rate $9 per hour
During March, the laboratory performed 2,000 core tests.
On March 1 no direct materials (sand) were on hand.
Variable manufacturing overhead is assigned to core tests on the basis of direct labor hours.
The following events occurred during March:
* 8,600 pounds of sand were purchased at a cost of $7,310.
* 7,200 pounds of sand were used for core tests.
* 840 actual direct labor hours were worked at a cost of $8,610.
* Actual variable manufacturing overhead incurred was $3,200.
The labor rate variance for March is
1. $4,578 unfavorable
2. $1,470 UNFAVORABLE
3. $4,578 FAVORABLE
4. $1,470 FAVORABLE
Explanation / Answer
The formula for calculating the Labor rate variance is
Labor rate variance = (Actual rate - Standard rate) * Actual hours of labor used
According to the given information,
Actual rate = Actual cost / Actual labor hours
= $8,610 / 840
= $10.25 per hour
Standard rate = $12 per hour
Actual hours of labor used = 840
Substituting the values in the above formula, we get
Labor rate variance = ($10.25 - $12) * 840
= -$1,470 (unfavorable)
Since the value is negative, the labor rate variance is unfavorable.
Therefore, the correct option is 2) $1,470 unfavorable