Sanford Ltd. produces a product with the following standard cost card: Direct ma

Question

Sanford Ltd. produces a product with the following standard cost card:

Direct materials (20 kg)

$50.00

Direct labour (9 hours)

84.16

Variable overhead (9 hours)

21.00

Fixed overhead (9 hours)

35.00

The fixed overhead rate is based on a standard monthly volume of 16233 units.

The actual results for the month of July 20x5 are as follows:

Direct materials purchased and used (325500 kg)

$620000

Direct labour (90115 hours)

1091920

Variable overhead

320000

Fixed overhead

580000

Units produced and sold

15500 units

What is Sanford’s direct labour rate variance for July 20x5 (note: a negative number represents an unfavourable variance and a positive number represents a favourable variance)?

Select one:

a. $-404082

b. $-249245

c. $249245

d. $404082

Direct materials (20 kg)

$50.00

Direct labour (9 hours)

84.16

Variable overhead (9 hours)

21.00

Fixed overhead (9 hours)

35.00

Explanation / Answer

Direct labour rate variance = (Standard rate - Actual rate ) x Actual hours
= {($84.16 / 9) - ($1,091,920 /  90115) x 90,115
= $249,245 Unfavourable

Option b. $-249,245 is correct answer.

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