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ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ $1.00 per pound; Direct labor: 1 hour @ $10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of $17,280; Direct labor: 36,000 hours at a total cost of $374,400. Compute the direct labor variance.Multiple choice question.$24,400 F$24,400 U$14,400 U$14,400 F

Question

ABC Company has set the following standards for one unit of product: Direct materials: 0.5 pounds @ 1.00perpound;Directlabor:1hour@1.00 per pound; Direct labor: 1 hour @ 10.00 per hour. The company produced 35,000 units and had the following actual costs: Direct materials: 18,000 pounds at a total cost of 17,280;Directlabor:36,000hoursatatotalcostof17,280; Direct labor: 36,000 hours at a total cost of 374,400. Compute the direct labor variance.Multiple choice question.24,400F24,400 F24,400 U14,400U14,400 U14,400 F

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Solution

To calculate the direct labor variance, we first need to find the standard cost and the actual cost.

  1. Standard Cost: The standard cost is what the company expects to pay for direct labor. According to the problem, the standard cost for direct labor is 1 hour per unit at 10.00perhour.So,for35,000units,thestandardcostwouldbe35,000units∗1hour/unit∗10.00 per hour. So, for 35,000 units, the standard cost would be 35,000 units * 1 hour/unit * 10.00/hour = $350,000.

  2. Actual Cost: The actual cost is what the company actually paid for direct labor. According to the problem, the actual cost for direct labor is $374,400.

  3. Direct Labor Variance: The direct labor variance is the difference between the standard cost and the actual cost. So, the direct labor variance would be 374,400(actualcost)−374,400 (actual cost) - 350,000 (standard cost) = $24,400.

Since the actual cost is higher than the standard cost, the variance is unfavorable. So, the answer is $24,400 U.

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