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Actual hours are 5,100 against a standard of 5,000, the standard rate is $10.00 and the actual rate is $9.50. What is the direct labour time variance?
A$1,000 unfavourable
B$1,000 favourable
C$500 unfavourable
D$950 unfavourable
Answer & Solution
Correct answer: A. $1,000 unfavourable
1. The time variance is actual hours minus standard hours, multiplied by the standard rate.
2. Actual hours minus standard hours is 5,100 minus 5,000, which is 100 hours.
3. 100 hours times $10.00 gives $1,000.
4. A positive result means more hours were worked than planned, so the variance is unfavourable.
5. The time variance always uses the standard rate, so costing the extra hours at the actual $9.50 would wrongly give $950.
6. The favourable rate variance of $2,550 is a separate element and does not change the sign of this one.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.3 Direct Labor Cost Variance_
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