Question

Assume Martin Guitar Company has a standard of 3 hours of direct labor per unit produced and $20 per hour for the labor rate. During last period, the company used 24,000 hours of direct labor at a $456,000 total cost to produce 6,000 units. Compute the direct labor rate and efficiency variances.a. Rate Variance: $120,000 unfavorable; Efficiency Variance: $24,000 unfavorable.

b. Rate Variance: $24,000 favorable; Efficiency Variance: $120,000 unfavorable.c. Rate Variance: $24,000 unfavorable; Efficiency Variance: $120,000 favorable.d. Rate Variance: $120,000 favorable; Efficiency Variance: $24,000 unfavorable.e. Rate Variance: $96,000 favorable; Efficiency Variance: $96,000 unfavorable.

Answer 1

B.

Step-by-step explanation:

Rate Variance

(Actual rate - Standard rate) x Actual hours worked = Labor rate variance

($456,000 / 24000 hrs - $20/hr) times 24,000 hr worked = Labor rate variance

($19 - $20) * 24,000 = Labor rate variance

$24,000 favorable Labor rate variance

Efficiency Variance

(Actual hours - Standard hours) x Standard rate = Labor efficiency variance

(24,000 hrs - 6000 units times 3hrs/unit) times ($20/hr) = Labor efficiency variance

(24,000 hrs - 18,000 hrs)(20) = Labor efficiency variance

(6000)(20) = Labor efficiency variance

$120,000 unfavorable Labor efficiency variance