Joe Malay received the following report on the Division\'s operation for the mon

Question

Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,500 unfavorable. Direct labor efficiency variance = $72,000 (?) The standard calls for 3.10 direct labor hours per unit of output at $28.60 per labor hour. The standard direct labor hours for the units manufactured is 20.00% more than the total direct labor hours actually worked in August. What was the total standard cost applied to production? $46,500 $360,000 $432,000 $306,000 $385,500 Joe Malay received the following report on the Division's operation for the month of August: Direct labor rate variance = $25,500 unfavorable. Direct labor efficiency variance = $72,000 (?) The standard calls for 3.10 direct labor hours per unit of output at $28.60 per labor hour. The standard direct labor hours for the units manufactured is 20.00% more than the total direct labor hours actually worked in August. What was the total standard cost applied to production? $46,500 $360,000 $432,000 $306,000 $385,500

Explanation / Answer

Let the Total actual Labour Hrs = x

Therefore, Standard hrs for the same output = x + 20% of x = 1.2 x

Also, if the actual hrs is less than standard that results in Favourable Variance i.e. 72000 ( Favourable)

Labour efficiency variance = (Standard hrs - Actual Hrs ) * Standard Rate

72000 = (1.2x - x ) * 28.6

Actual Hrs worked, i.e. x = 72000/(28.6*0.2) = 12,587

Standard Hrs worked = 1.2 x = 1.2 * 12587 =15104

Total units mfd = 15104 / 3.1 = 4,872

Standard cost of Production = 4872 units * 3.1 hrs per unit * 28.6 per hrs

= $ 432,000.00

Figures have been rounded off to zero decimal places.

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