ExpertEasy2 marksMultiple Choice
ACCA · Question 25 · Standard costing
Section A
PixelPlay, a video game studio, uses standard costing for its freelance coders.
Which of the following formulas correctly calculates the direct labor rate variance?
Section A
PixelPlay, a video game studio, uses standard costing for its freelance coders.
Which of the following formulas correctly calculates the direct labor rate variance?
Answer options:
A.
Standard hours for actual production × (Standard Rate - Actual Rate)
B.
Actual hours paid × (Standard Rate - Actual Rate)
C.
Standard Rate × (Standard hours - Actual hours)
D.
Actual Rate × (Standard hours - Actual hours)
How to approach this question
Recall that a 'rate' or 'price' variance looks at the difference in money (Rate) multiplied by the actual quantity (Hours) purchased/paid.
Full Answer
B.Actual hours paid × (Standard Rate - Actual Rate)✓ Correct
The direct labor rate variance measures the difference between what was actually paid for the labor hours worked and what should have been paid according to the standard. The formula is: (Standard Rate - Actual Rate) × Actual Hours Paid. (Note: If Actual Rate > Standard Rate, the result is negative/Adverse).
Common mistakes
Confusing rate variance with efficiency variance (Option C).
Practice the full ACCA MA — Management Accounting Practice Exam 6
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