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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

Zeta Ltd's standard labour rate is $12 per hour. In May, 4,500 hours were paid for at a total cost of $56,250, and all hours paid were worked. What is the labour rate variance?

The labour rate variance is $2,250 adverse. Actual hours of 4,500 at the standard rate of $12 would cost $54,000, but the business actually paid $56,250, so labour cost $2,250 more than standard for the hours worked.

  1. A$2,250 adverseCorrect
  2. B$2,250 favourable
  3. C$1,500 adverse
  4. D$3,000 adverse

Explanation

Actual hours at standard rate = 4,500 x $12 = $54,000. Actual cost = $56,250. The difference of $2,250 is adverse because actual cost exceeds standard cost. The $2,250 favourable option reverses the sign.

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