The following computations of March labor variances for Sam’s Supply Company are

Question

The following computations of March labor variances for Sam’s Supply Company are incomplete. The missing items are labeled (a) through (d).

Labor rate variance = 4,800 hours * [(a) – $8.50] = $350 favorable

Labor efficiency variance = (b) * [(c) – 5,000 hours] = $(d)

1. Is (a) the standard rate or the actual rate?

2. Is 8.50 the standard rate or actual rate??

Is a 8.43 or 8.57?

I have seen:

4800(a - 8.50) = 350

4800a - 40800 = 350

4800a = 41150

4800(a - 8.50) = 350

4800a - 40800 = 350

4800a = 41150

a = 8.5729

and I have seen

Labor rate variance = 4,800 hours x [(a) – $8.50] = $350
- $350 / 4,800 = [(a) – $8.50]
(a) = $8.43

which is correct, and why??

Thank you for your time.

Explanation / Answer

1 and 2

Labor rate variance = Actual Time Taken (Standard Rate – Actual Rate)

Labor rate variance = 4,800 hours * [(a) – $8.50] = $350 favorable

Hence (a) is standard rate

Hence $8.50 is the actual rate

Labour rate variance is favourable hence sign for favourable Labour rate variance is "+ve"

So

4,800 hours * [(a) – $8.50] = $350 favorable

4,800 hours * [(a) – $8.50] = + $350

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