Biscuit Company has developed the following standards for one of its products. D

Question

Biscuit Company has developed the following standards for one of its products. Direct labor hours is the driver used to assign overhead costs to products.

Direct materials:                                               10 pounds ? $3 per pound

Direct labor:                                                     2.5 hours ? $8 per hour

Variable manufacturing overhead:           2.5 hours ? $2 per hour

The following activity occurred during the month of June:

Materials purchased:                                                  125,000 pounds at $2.60 per pound

Materials used:                                                            110,000 pounds

Units produced:                                                           10,000 units

Direct labor:                                                                24,000 hours at $8.50 per hour

Actual variable manufacturing overhead: $51,000

The company records materials price variances at the time of purchase.

The direct labor rate variance is

a. $12,000 favorable.

b. $8,000 favorable.

c. $12,000 unfavorable.

d. $8,000 unfavorable.

Explanation / Answer

Labour rate variance = (Standard rate-actual rate)actual hours

= (8-8.50)*24000

Labour rate variance = 12000 U

So answer is c) $12000 Unfavorable

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