Question

Tidex Company is a manufacturer of cleaning detergent. Cleanx is manufactured on a weekly basis. The following standards have been established to produce 10,000 litres of Cleanx:

Standard direct labour hours of 5,000 to mix 10,000 litres of detergent
Standard direct labour rate per hour: $18
Actual direct labour hours consumed: 5,500
Actual direct labour rate: $18.45

Calculate the Labour Price Variance (LPV)
a) $2,250 favorable
b) $2,250 unfavorable
c) $4,500 favorable
d) $4,500 unfavorable

Answer 1

The Labor Price Variance (LPV) is -$2,475, indicating an unfavorable variance of $4,500.

Step-by-step explanation:

The Labor Price Variance (LPV) can be calculated using the formula: LPV = (Standard Rate - Actual Rate) x Actual Hours.

Given that the standard rate is $18 and the actual rate is $18.45, and the actual hours are 5,500, we can substitute these values into the formula: LPV = ($18 - $18.45) x 5,500.

The Labor Price Variance (LPV) is determined using the formula: LPV = (Standard Rate - Actual Rate) x Actual Hours. In this scenario, with a standard rate of $18 and an actual rate of $18.45, and given that the actual hours are 5,500,

Calculating this, we get: LPV = (-$0.45) x 5,500 = -$2,475.

Since the LPV is a negative value, it indicates an unfavorable variance.

Therefore, the correct answer is d) $2,475 unfavorable, as the negative value signifies that the actual rate is higher than the standard rate, leading to an adverse impact on the labor price variance.