Ally Mig. uses a standard cost system and its July production of 1,700 units inv

Question

Ally Mig. uses a standard cost system and its July production of 1,700 units involved actual direct labor costs of $228,600 for 5,190 hours worked. The budget for July called for production of 1,900 units with 5,700 direct labor hours at $37.00 per hour. Ally's direct labor rate variance for July is: $37,570 unfavorable $39,900 unfavorable $3,330 unfavorable $4,330 unfavorable $36,570 unfavorable Ally Mig. uses a standard cost system and its July production of 1,700 units involved actual direct labor costs of $228,600 for 5,190 hours worked. The budget for July called or production of 1,900 units with 5,700 direct labor hours at $37.00 per hour. Ally's flexible budget variance for July is: $3,330 unfavorable $36,570 unfavorable $4,330 unfavorable $37,570 unfavorable Ann unfaunrahle

Explanation / Answer

Calculation of labour rate variance:

Labor rate variance = Standard Labor cost - Actual Labor cost

Standard Labor cost = Actual hours worked x Standard rate

Actual Labor cost = Actual hours worked x Actual rate (Given in the question as $228,600)

Therefore Labor rate variance = (5190 x $37) - $228600 = $192,030 - $228600 = - $36570 (Unfavorable)

The correct answer is Option E ($36,570 Unfavorable)

Calculation of flexible budget variance:

1900 units require 5700 direct labor hours

So 1700 units require (1700 x 5700) / 1900 = 5100 direct labor hours.

The flexible direct labor cost = 5100 x 37 = $188,700

Actual direct labor cost = $228,600

Flexible budget variance = 188700 - 228600 = - $39,900 (Unfavourable)

The correct answer is Option E ($39,900 Unfavorable)

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