Question

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?
Question options:
a.$550 unfavourable.
b.$1,050 unfavourable.
c.$2,150 favourable.
d.$2,150 unfavourable.

Answer 1

The labour rate variance for the Albright Company for November is a $550 unfavourable variance, calculated based on the difference between the standard cost of $8 per hour and the actual cost of $8.25 per hour for the 2,200 hours worked.

Step-by-step explanation:

The labour rate variance for November can be calculated by taking the difference between the standard cost for actual hours worked and the actual cost for direct labour used. The standard rate is $8 per hour, and the actual rate is $8.25 per hour. The total hours worked were 2,200 hours. The formula for the labour rate variance is:

(Standard Rate - Actual Rate) x Actual Hours Used = Labour Rate Variance

(($8.00 - $8.25) x 2,200 hours) = -$550

Since the actual cost was higher than the standard cost, this is considered an unfavourable variance.