Question

A company uses the following standard costs to produce a single unit of output.

Direct materials	6 pounds at $0.90 per pound	=	$	5.40
Direct labor	0.5 hour at $12.00 per hour	=	$	6.00
Manufacturing overhead	0.5 hour at $4.80 per hour	=	$	2.40

During the latest month, the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400. Based on this information, the total direct labor cost variance for the month was:

Multiple Choice

• $3,650 favorable

• $2,450 favorable

• $1,200 unfavorable

• $1,200 favorable

• $2,450 unfavorable

Answer 1

Total labor cost variance

= Standard labor cost - Actual labor cost

= (6*10,000) - 56,350

= 60,000 - 56,350

= 3650 Favourable