The Geurtz Company uses standard costing. The company makes and sells a single p

Question

The Geurtz Company uses standard costing. The company makes and sells a single product called a Roff. The following data are for the month of August:

The labor rate variance was:

• Actual cost of direct material purchased and used: $82,680 • Material price variance: $3,180 unfavorable • Total materials variance: $21,180 unfavorable • Standard cost per pound of material: $5 • Standard cost per direct labor-hour: $5 • Actual direct labor-hours: 11,700 hours • Labor efficiency variance: $3,000 favorable • Standard number of direct labor-hours per unit of Roff: 3 hours • Total labor variance: $5,190 unfavorable

Explanation / Answer

Total labor variance = Labor efficiency variance + Labor rate variance

$ 5190 U = $3000 F +  Labor rate variance

Labor rate variance = ( $5190 + $3000) U

= $ 8190 Unfavourable

Labor rate variance = AH (AR ? SR)

8190 U = 11700 hours * (AR - $5)

0.70 U = (AR - $5)

AR = $ 5.70

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