Link Pty Ltd has set direct labour standards of 3 hours per unit and $5 per hour. During the month 2900 hours at a total cost of $17 400 were used to produce 1000 units. Determine the direct labour rate variance
Question
Link Pty Ltd has set direct labour standards of 3 hours per unit and 17 400 were used to produce 1000 units. Determine the direct labour rate variance
Solution
The direct labour rate variance can be calculated using the following steps:
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Calculate the standard cost per hour: According to the information given, the standard cost per hour is $5.
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Calculate the actual cost per hour: This can be calculated by dividing the total cost by the total hours worked. So, 6 per hour.
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Calculate the rate variance: This is calculated by subtracting the standard cost per hour from the actual cost per hour and then multiplying by the actual hours worked. So, (5) * 2900 equals $2900.
Therefore, the direct labour rate variance is $2900. This is unfavorable because the actual cost per hour is higher than the standard cost per hour.
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