Section A

CodeCrafters, a tech startup, set a standard labor rate of $40 per hour. During the month, they hired emergency contract developers, paying $50,000 for 1,000 hours of work. What is the labor rate variance?

Answer options:

$10,000 Favorable

$10,000 Adverse

$40,000 Adverse

$50,000 Adverse

How to approach this question

Compare the actual cost paid for the hours worked against what should have been paid for those hours at the standard rate.

Full Answer

B.$10,000 Adverse✓ Correct

Labor Rate Variance = (Standard Rate - Actual Rate) * Actual Hours. Standard cost for 1,000 hours = $40,000. Actual cost = $50,000. They overpaid by $10,000, resulting in an Adverse variance.

Common mistakes

Confusing rate variance with efficiency variance.

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