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labor rate variance

This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.

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November 26, 2014 at 11:33 pm #213614
Shanda
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a company has a budgeted labor cost of $180,000 for the production of 30000 units per month. Each unit is budgeted to take 3 hours of labor. The actual labor cost during the month was $160,000 for 28,000 and 85,000 hours were worked. What is the favorable labor rate of pay variance?
budgeted: $180000/30000=6 per unit
$6/3hours =2 per unit
actual: $160000/85000=$1.8823
variance: $2-$1.8823 *85000=10004.5
Is my calculation correct?
November 27, 2014 at 7:00 am #213664
John Moffat
Keymaster
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It is correct, apart from rounding.
The actual answer is $10,000
(Actual total cost = $160,000
Actual hours at standard cost = 85,000 x $2 = $170,000
Variance = 170,000 – 160,000 = $10,000)
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