Complete Question:
When auto manufacturer BMW purchased the Rolls-Royce brand name, BMW had to hire and train a new staff of assembly workers. The new workers were paid $25 per hour, worked a total of 7,500 hours, and produced 2,000 cars. BMW budgeted for a standard labor rate of $27 per hour and 1.25 direct labor hours per car.
What is the direct labor rate variance for the Rolls-Royce division?
Answer:
$15,000 Favorable Variance
Explanation:
As we know that:
Labor Rate Variance = (Actual Rate per Hour − Standard Rate per Hour) * Actual Hours Worked
If we consider the parenthesis elements in the formula, we can decide whether the variance is favorable or adverse. If the actual cost is higher than the budget (standard) then the variance (difference) is adverse and vice versa.
Here
Actual rate per hour is $25 per Hour
Standard rate per hour is $27 per Hour
Actual Hours Worked are 7,500 Hour
By putting values, we have:
Labor Rate Variance = ($25 − $27) * 7,500 Hrs
Labor Rate Variance = ($2 per share) * 7,500 Hrs
Labor Rate Variance = $15,000 Favorable
As the actual labor rate is lower than the standard rate hence the variance is favorable.
