Question

Basix Inc. calculates direct manufacturing labor variances and has the following​ information: Actual hours​ worked: 200 Standard​ Hours: 250 Actual rates per​ hour: $ 12 Standard rate per​ hour: $ 10 Given the information​ above, which of the following is correct regarding direct manufacturing labor​ variances?

a. The price and efficiency variances are favorable.
b. The price and efficiency variances are unfavorable.
c. The price variance is favorable, while the efficiency variance is unfavorable.
d. The price variance is unfavorable, while the efficiency variance is favorable.

Answer 1

The price variance is unfavorable, while the efficiency variance is favorable

Step-by-step explanation:

To determine the labor efficiency variance, we will use the following formula: Variance = (standard hours – actual hours) x standard rate = variance = (250 hours – 200 hours) x $10 per hour = 50 hours x $10 per hour = $500 favorable

To determine the labor price variance, we will use the following formula: variance = (standard rate - actual rate) x standard hours = ($10 per hour - $12 per hour) x 250 hours = -$2 per hour x 250 hours = -$500 unfavorable