FINANCIAL PERFORMANCE practice assessment Labour Rate question

gabriellenlewis

Delta manufactures 5400 units, using 11880 labour hours. The budgeted production was 5000 units using 11250 labour hours at a cost of £163125. The labour rate variance is £14850 favourable.

Calculate the actual labour rate per hour.



So, I started by 163125 - 14850 = 148275
Then I divided this by standard labour hours (148275/ 11250) and got 13.18. But the answer is 13.25?!

georgeSO

Standard labour rate is budgeted cost/budgeted activity or £163125/11250hrs = £14.50/hr

From here we can work out that the actual hours at the standard rate (what it should have cost) is
11880hrs x £14.5 = £172260

Deduct the favourable labour rate variance to work out what we actually spent
£172260 - £14850 = £157410

Divide this by actual hours worked to work out actual labour rate
£157410/11880hrs = £13.25

Hope this helps/makes sense