**Title: Understanding Direct Labor Rate Variance****Introduction:**In this example, we examine Flapjack Corporation's direct labor rate variance calculation. Understanding this concept is crucial for cost accounting and managerial decision-making.**Scenario Details:**- Flapjack Corporation recorded 7,704 actual direct labor hours.- The actual rate was $12.30 per hour.- The budgeted production was for 1,100 units; however, only 957 units were produced.- The labor standard was set at 7.8 hours per unit with a standard rate of $13.05 per hour.**Question:**Determine the direct labor rate variance from the following options:- A. $5,778.00 unfavorable- B. $5,778.00 favorable- C. $3,523.81 unfavorable- D. $3,523.81 favorable**Explanation of Options:**To solve this, we need to apply the direct labor rate variance formula:\[ \text{Direct Labor Rate Variance} = (\text{Actual Hours} \times \text{Actual Rate}) - (\text{Actual Hours} \times \text{Standard Rate}) \]**Calculation:**1. Calculate the total cost at the actual rate: \[ 7,704 \text{ hours} \times $12.30/\text{hour} = $94,759.20 \]2. Calculate the total cost at the standard rate: \[ 7,704 \text{ hours} \times $13.05/\text{hour} = $100,538.20 \]3. Determine the variance: \[ \text{Rate Variance} = $94,759.20 - $100,538.20 = -$5,778.00 \] Since the result is negative, it indicates an **unfavorable variance**.Thus, the correct answer is:- **Option A. $5,778.00 unfavorable**Understanding the direct labor rate variance helps in managing and controlling labor costs effectively, ensuring the firm adheres to its budgeting plans.

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Description: **Title: Understanding Direct Labor Rate Variance****Introduction:**In this example, we examine Flapjack Corporation's direct labor rate variance calculation. Understanding this concept is crucial for cost accounting and managerial decision-making.*

The gap between actual and expected labor expenses is referred to as the labor rate variance. A…

Business

Accounting

Flapjack Corporation had 7,704 actual direct labor hours at an actual rate of $12.30 per hour. Original production had been budgeted for 1,100 units, but only 957 units were actually produced. Labor standards were 7.8 hours per completed unit at a standard rate of $13.05 per hour. The direct labor rate variance is a. $5,778.00 unfavorable O b. $5,778.00 favorable Oc. $3,523.81 unfavorable Od. $3,523.81 favorable

Flapjack Corporation had 7,704 actual direct labor hours at an actual rate of $12.30 per hour. Original production had been budgeted for 1,100 units, but only 957 units were actually produced. Labor standards were 7.8 hours per completed unit at a standard rate of $13.05 per hour. The direct labor rate variance is a. $5,778.00 unfavorable O b. $5,778.00 favorable Oc. $3,523.81 unfavorable Od. $3,523.81 favorable

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

Variance Analysis

In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.

Standard Costing

The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.

Topic Video

Question

**Title: Understanding Direct Labor Rate Variance**

**Introduction:**
In this example, we examine Flapjack Corporation's direct labor rate variance calculation. Understanding this concept is crucial for cost accounting and managerial decision-making.

**Scenario Details:**
- Flapjack Corporation recorded 7,704 actual direct labor hours.
- The actual rate was $12.30 per hour.
- The budgeted production was for 1,100 units; however, only 957 units were produced.
- The labor standard was set at 7.8 hours per unit with a standard rate of $13.05 per hour.

**Question:**
Determine the direct labor rate variance from the following options:
- A. $5,778.00 unfavorable
- B. $5,778.00 favorable
- C. $3,523.81 unfavorable
- D. $3,523.81 favorable

**Explanation of Options:**
To solve this, we need to apply the direct labor rate variance formula:
\[ \text{Direct Labor Rate Variance} = (\text{Actual Hours} \times \text{Actual Rate}) - (\text{Actual Hours} \times \text{Standard Rate}) \]

**Calculation:**
1. Calculate the total cost at the actual rate:
\[ 7,704 \text{ hours} \times $12.30/\text{hour} = $94,759.20 \]

2. Calculate the total cost at the standard rate:
\[ 7,704 \text{ hours} \times $13.05/\text{hour} = $100,538.20 \]

3. Determine the variance:
\[ \text{Rate Variance} = $94,759.20 - $100,538.20 = -$5,778.00 \]
Since the result is negative, it indicates an **unfavorable variance**.

Thus, the correct answer is:
- **Option A. $5,778.00 unfavorable**

Understanding the direct labor rate variance helps in managing and controlling labor costs effectively, ensuring the firm adheres to its budgeting plans.

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