Preble Company manufactures one product. Its variable manufacturing overhead is
ID: 2446588 • Letter: P
Question
Preble Company manufactures one product. Its variable manufacturing overhead is applied to production based on direct labor-hours and its standard cost card per unit is as follows: Direct materials: 5 pounds at $10 per pound $ 50 Direct labor: 3 hours at $17 per hour 51 Variable overhead: 3 hours at $7 per hour 21 Total standard cost per unit $ 122 The planning budget for March was based on producing and selling 24,000 units. However, during March the company actually produced and sold 30,600 units and incurred the following costs: a. Purchased 170,000 pounds of raw materials at a cost of $9.00 per pound. All of this material was used in production. b. Direct laborers worked 68,000 hours at a rate of $18 per hour. c. Total variable manufacturing overhead for the month was $512,040. What is the labor rate variance for March?
Explanation / Answer
Labor Rate Variance is the technique to find the difference between the actual cost of direct labor and the standard cost of direct labor incurred during a particular period period for actual unit produced. So, we will calculate labor rate variance as below:
Preble Company
Labor Rate Variance for the month of March
Nos. of Unit Produced in March
30600
S. No.
Particulars
Hrs per unit
Rate Per Hrs
Total Direct Labor Cost on actual production
Standard Cost
3
17
15,60,000
Actual Cost
2.22
18
12,24,000
Labor Rate Variance (Favourable)
3,36,600
Analysis A favorable labor rate variance suggests cost efficient employment of labor by the organization
Nos. of Unit Produced in March
30600
S. No.
Particulars
Hrs per unit
Rate Per Hrs
Total Direct Labor Cost on actual production
Standard Cost
3
17
15,60,000
Actual Cost
2.22
18
12,24,000
Labor Rate Variance (Favourable)
3,36,600
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