Arrow Industries employs a standard cost system in which direct materials invent

Question

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.

During November, Arrow purchased 154,400 pounds of direct materials at a total cost of $314,200. The total factory wages for November were $26,400, 90% of which were for direct labor. Arrow manufactured 12,000 units of product during November using 83,700 pounds of direct materials and 3,080 direct labor hours.

Standard Quantity Standard
price Standard cost    Direct Materials 12 pounds   $ 2.00 per pound   $ 24.00      Direct Labor 0.25 hour   $ 8.00 per hour   $ 2.00   $    26.00  

Explanation / Answer

Labor Rate Variance = (Standard Rate - Actual Rate) Actual Hours worked

= (8 x 3080) - ($26,400 x 0.9 )

= 24640 - 23760

= 880 Favorable

Option C is correct.

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