Pardoe, Inc., manufactures a single product in which variable manufacturing overhead is assigned on the basis of standard direct labor-hours. The company uses a standard cost system and has established the following standards for one unit of product:

  1. During March, the following activity was recorded by the company:

    • The company produced 3,000 units during the month.
    • A total of 8,000 pounds of material were purchased at a cost of $23,000.
    • There was no beginning inventory of materials on hand to start the month; at the end of the month, 2,000 pounds of material remained in the warehouse.
    • During March, 1,600 direct labor-hours were worked at a rate of $6.50 per hour.
    • Variable manufacturing overhead costs during March totaled $1,800.

    The direct materials purchases variance is computed when the materials are purchased.

The labor rate variance for March is:

  • $480 F
  • $480 U
  • $800 U
  • $800 F

Answer:

Labor rate variance = AH × (AR − SR)
= 1,600 hours × ($6.50 per hour − $6.00 per hour)
= 1,600 hours × ($0.50 per hour)
= $800 U

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