ECONOMICS

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COST ACCOUNTING

STANDARD COSTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
In producing product ZZ, 14, 800 direct labor hours were used at a rate of $8.20 per hour. The standard was 15, 000 hours at $8.00 per hour. Based on these data, the direct labor:
A
quantity variance is $1, 600 favorable.
B
quantity variance is $1, 600 unfavorable.
C
price variance is $3, 000 favorable.
D
price variance is $3, 000 unfavorable.
Explanation: 

Detailed explanation-1: -Labor variance focuses specifically on working rates given the actual amount of hours worked and is calculated with the following formula: (Actual Hours x Actual Rate)-(Actual Hours x Standard Rate). Actual hours are the number of hours that employees have worked.

Detailed explanation-2: -The formula for this variance is:(standard hours allowed for production – actual hours taken) × standard rate per direct labour hour.

Detailed explanation-3: -Direct labor rate variance measures the cost of the difference between the expected labor rate and the actual labor rate. If the variance demonstrates that actual labor rates were higher than expected labor rates, then the variance will be considered unfavorable.

Detailed explanation-4: -Answer and Explanation: Explanation: The production manager is probably most responsible for the direct labor efficiency variance.

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