Flapjack Corporation had 7,953 actual direct labor hours at an actual rate of $12.00 per hour. Original production had been budgeted for 1,100 units, but only 988 units were actually produced. Labor standards were 7.5 hours per completed unit at a standard rate of $12.88 per hour. The direct labor rate variance is a.$6,998.64 unfavorable b.$6,998.64 favorable c.$7,299.25 unfavorable d.$7,299.25 favorable

The correct answer is:

$6,998.64 favorable (b)

Explanation:

The direct labor rate/price variance is the difference between the standard cost of production and the actual cost incurred in the production process. If the actual rate of labor is less than the standard labor rate, it is said to be favorable, because lesser time is used in the production process than estimated. The reverse is the case for unfavorable direct labor rate variance.

The formula is given as:

Direct Labor Rate Variance = (SR - AR) * AH

Where

SR = standard rate = $12.88 per hour

AR = actual rate = $12.00 per hour

AH = actual direct labor hours = 7,953 hours

∴ Direct labor rate variance = (12.88 - 12.00) * 7,953 = $6,998.64 favorable