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The Albright Company uses standard costing and has established the following standards for its single product: Direct Materials 2 litres at $3 per litre Direct Labour 0
The Albright Company uses standard costing and has established the following standards for its single product:
Direct Materials 2 litres at $3 per litre
Direct Labour 0.5 hours at $8 per hour
Variable Manufacturing Overhead 0.5 hours at $2 per hour
During November, the company made 4,000 units and incurred the following costs:
Direct Materials Purchased 8,100 litres at $3.10 per litre
Direct Materials Used 7,600 litres
Direct Labour Used 2,200 hours at $8.25 per hour
Actual Variable Manufacturing Overhead $4,175
The company applies variable manufacturing overhead to products on the basis of direct labour hours.
What was the labour rate variance for November?
Expert Solution
Computation of the labor rate variance for November:-
Labor rate variance = Actual Hours * (Actual rate - Standard rate)
= 2,200 * ($8.25 - $8)
= 2,200 * $0.25
= $550 (U)
The labor rate variance is unfavorable because the actual rate is higher than the standard rate.
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