The Thompson Company uses standard costing and has established the following dir

Question

The Thompson Company uses standard costing and has established the following direct material and direct labor standards for each unit of Lept. Direct materials: 2 gallons at $4 per gallon Direct labor: 0.5 hours at $8 per hour During September, the company made 6,000 Lepts and incurred the following costs: Direct materials purchased: 13,400 gallons at $4.10 per gallon Direct materials used: 12,600 gallons Direct labor used: 2,800 hours at $7.65 per hour The labor rate variance for September was: $980 unfavorable $280 favorable $1,530 unfavorable $980 favorable The materials price variance for September was: $1,340 unfavorable $1, 260 favorable $1,340 favorable $1, 260 unfavorable

Explanation / Answer

Labour rate variance = (Actual rate per hour - standard rate per hour) * Actual Hours Actual labour hours = 2800 hours Actual rate per hour = $7.65 Standard rate per hour = $8 Labour rate variance = ($7.65 - $8) * 2800 hours = $980 Favourable The answer is Option D. Material Price variance = (Actual price per gallon - standard price per gallon) * Actual quantity of material purchased Actual quantity of material purchased = 13400 gallons Actual price per gallon = $4.10 standard price per gallon = $4 Material Price variance = ($4.10 - $4) * 13400 gallons = $1340 Unfavourable The answer is Option A.

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