Question

Talbot Company's standard labour cost per unit of output is $28.00 (2 hours × $14.00 per hour). During August, the company incurs 2,550 hours of direct labour at an hourly cost of $13.70 per hour in making 1,200 units of finished product. Calculate the total, price, and quantity labour variances.

a) $2,000 Favorable, $1,350 Unfavorable, $2,000 Favorable
b) $2,000 Unfavorable, $1,350 Favorable , $2,550 Favorable
c) $4,200 Favorable, $1,400 Favorable, $2,550 Unfavorable
d) $4,200 Unfavorable, $1,400 Unfavorable, $2,000 Unfavorable

Answer 1

The total labor variance is $2,000 favorable, the labor price variance is $1,350 unfavorable, and the labor quantity variance is $2,000 favorable. Thus, the correct answer is option a.

Step-by-step explanation:

To calculate the labor variances, we first find the standard cost for the actual hours worked and compare it to the actual cost incurred. The standard labor cost per unit is $28.00 (2 hours × $14.00 per hour). For 1,200 units produced, the standard labor cost would be $33,600 (1,200 units × $28.00 per unit) (option a).

Next, we compute the actual labor cost, which is 2,550 hours worked at an hourly rate of $13.70, totaling $34,635 (2,550 hours × $13.70 per hour).

The total labor variance is the difference between the standard cost and the actual cost: $34,635 (actual cost) - $33,600 (standard cost) = $1,035 favorable. This variance could also be calculated by decomposing it into the labor price and quantity variances.

The labor price variance is calculated as (Actual Hours × Actual Rate) - (Actual Hours × Standard Rate), which equals ($34,935 - $34,560) = $1,350 unfavorable.

The labor quantity variance is computed as (Standard Rate × Actual Hours) - (Standard Rate × Standard Hours), resulting in ($33,600 - $30,960) = $2,000 favorable.

Therefore, the total labor variance is $2,000 favorable, the labor price variance is $1,350 unfavorable, and the labor quantity variance is $2,000 favorable, which aligns with the final answer provided.