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Zenith Manufacturing Group has a standard direct labor cost of $12 per hour and it takes 3 hours to produce one unit of product. In September, the company produced 700 units. The actual direct labor cost was $26,000 for 2,000 hours. Calculate the labor rate variance.Question 8Answera.$2000 Favourableb.$1000 Adversec.0d.$2000 Adverse

Question

Zenith Manufacturing Group has a standard direct labor cost of 12perhourandittakes3hourstoproduceoneunitofproduct.InSeptember,thecompanyproduced700units.Theactualdirectlaborcostwas12 per hour and it takes 3 hours to produce one unit of product. In September, the company produced 700 units. The actual direct labor cost was 26,000 for 2,000 hours. Calculate the labor rate variance.Question 8Answera.2000Favourableb.2000 Favourableb.1000 Adversec.0d.$2000 Adverse

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Solution

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

  1. Standard Cost: The standard cost is the amount the company expects to pay for labor per unit of product. In this case, it's 12perhourandittakes3hourstoproduceoneunit.So,thestandardcostis12 per hour and it takes 3 hours to produce one unit. So, the standard cost is 12 * 3 = $36 per unit.

  2. Actual Cost: The actual cost is the amount the company actually paid for labor. In this case, it's 26,000for2,000hours.So,theactualcostperhouris26,000 for 2,000 hours. So, the actual cost per hour is 26,000 / 2,000 = $13 per hour.

  3. Labor Rate Variance: The labor rate variance is the difference between the standard cost and the actual cost. In this case, it's 12(standardcost)−12 (standard cost) - 13 (actual cost) = -1perhour.Sincethecompanyproduced700unitsandittakes3hourstoproduceoneunit,thetotalhoursworkedis700∗3=2,100hours.So,thetotallaborratevarianceis−1 per hour. Since the company produced 700 units and it takes 3 hours to produce one unit, the total hours worked is 700 * 3 = 2,100 hours. So, the total labor rate variance is -1 * 2,100 = -$2,100.

Therefore, the labor rate variance is 2,100Adverse.So,theansweris(d)2,100 Adverse. So, the answer is (d) 2000 Adverse.

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