Diamond Company produces a single product. The company has set the following sta

Question

Diamond Company produces a single product. The company has set the following standards for materials and labor: Standard quantity or hours per unit Standard price or rate materials.... pounds per unit S Direct labo 3.0 hours per unit S10 per hour During the past month, the company purchased 7,000 pounds of direct materials at a cost of $17,500. All of this material was used in the production of 1,300 units of product. Direct labor cost totaled $36,750 for the month The following variances have been computed: Materials quantity variance. $1,375 U $375 F Labor efficiency variance$4,000 F Compute the actual direct labor cost per hour for the month.

Explanation / Answer

Standard hours for 1,300 units = 1,300 x 3 = 3,900 hours

Labor efficiency variance = (Actual hours - Standard hours) x Standard rate

-$ 4,000 = (Actual hours – 3,900) x $ 10

-$ 4,000/$ 10 = (Actual hours – 3,900)

- 400 = (Actual hours – 3,900)

Actual hours = 3,900 – 400 = 3,500 hours

Actual direct labor rate = Total cost/ no. of actual labor hours

                                     = $ 36,750/3,500 = $ 10.50

Actual direct labor cost per hour for the month is $ 10.50

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