Abba Company produces sails for boats. The Houston plant uses a standard costing

Question

Abba Company produces sails for boats. The Houston plant uses a standard costing system with the following standards for materials (cloth) and direct labor.

There are no beginning or ending inventories for direct materials.

For direct labor, what is the rate variance?

Standards     Cloth (Direct Materials)         Standard Price $ 2.35     Direct Labor         Standard Rate $ 13.16 December Data     Number of Sails Produced 20,454     Cloth (Direct Materials)         Actual Price $ 5         Actual Usage 103,923 square yards         Standard Quantity Allowed (given production) 114,795 square yards     Direct Labor         Actual Rate $ 9.69         Actual Usage 20,416 hours         Standard Quantity Allowed (given production) 26,045 hours

Explanation / Answer

Direct labor rate variance = ( Standard Rate - Actual Rate)* Actual Hours worked

($13.16-$9.69)*20416 hrs

=3.47*20416

=$ 70843.52 favorable

Since standard cost is more than that of the actual cost, hence the variance is favorable

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