Biscuit Company has developed the following standards for on

Biscuit Company has developed the following standards for one of its products. Direct labor hours is the driver used to assign overhead costs to products.

Direct materials:                                               10 pounds ? $3 per pound

Direct labor:                                                     2.5 hours ? $8 per hour

Variable manufacturing overhead:           2.5 hours ? $2 per hour

The following activity occurred during the month of June:

Materials purchased:                                                  125,000 pounds at $2.60 per pound

Materials used:                                                            110,000 pounds

Units produced:                                                           10,000 units

Direct labor:                                                                24,000 hours at $8.50 per hour

Actual variable manufacturing overhead: $51,000

The company records materials price variances at the time of purchase.

The direct labor rate variance is

a. $12,000 favorable.

b. $8,000 favorable.

c. $12,000 unfavorable.

d. $8,000 unfavorable.

Solution

Labour rate variance = (Standard rate-actual rate)actual hours

= (8-8.50)*24000

Labour rate variance = 12000 U

So answer is c) $12000 Unfavorable