Direct labor for the month was 12,400 hours at a total cost of $327,360. The standard wage rate is $26 per hour, and standard hours allowed for the actual output were 12,500. What is the direct labor rate variance?

Correct answer: C) $4,960 unfavorable

Explanation

Actual rate = $327,360 / 12,400 = $26.40. Rate variance = (actual rate - standard rate) x actual hours = ($26.40 - $26.00) x 12,400 = $4,960 unfavorable. Equivalently, $327,360 - 12,400 x $26 = $4,960. Using standard hours instead of actual hours gives $0.40 x 12,500 = $5,000, and $2,360 unfavorable ($327,360 - 12,500 x $26 = $327,360 - $325,000) is the total labor flexible budget variance, which also includes the $2,600 favorable efficiency variance.