Question

Machine Builders Inc. adopted a standard cost system several years ago that it uses in conjunction with its process cost system. The per-unit standard costs for direct materials and direct labor for its single product are as follows:

Materials:	(5 kilograms × $10 per kilogram)	$	50
Labor:	(4 hours × $13 per hour)	$	52

All materials are issued at the beginning of processing. The operating data shown below were taken from the records for July:

In-process beginning inventory		none
In-process ending inventory—90% complete as to labor		1,100	units
Units completed during the month		7,300	units
Budgeted output		7,500	units
Purchases of materials, in kilograms (AQ)		38,000
Total actual labor costs incurred	$	517,000
Direct labor hours worked (AQ)		37,000	hours
Materials purchase-price variance	$	3,000	unfavorable
Increase in materials inventory in July		1,400	kilograms
Beginning inventory of materials		0	kg.

The direct labor rate variance for July (to nearest dollar) is: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $21,490 favorable.

• $31,490 favorable.

• $35,890 unfavorable.

• $72,490 unfavorable.

• $73,090 unfavorable.

Answer 1

Computation of labor rate variance is:

Labor rate variance = (Actual labor hours * Standard rate) - (Actual labor hours * Actual rate)

= (37,000 hours * $13) - (37,000 hours * $13.97)

= $481,000 - $516,890

= $35,890 Unfavorable

Hence, the labor rate variance is $35,890 unfavorable, that is, the 3rd option is correct.

Working Note:

Computation of actual rate is:

Actual rate = Total actual cost of labor / Actual labor hours

= $517,000 / 37,000 hours

= $13.97

Hence, the actual rate is $13.97