Using the direct labor data where AH × AR = $84,000, AH × SR = $83,000, and SH × SR = $85,000, what is the direct labor cost variance?

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Multiple Choice

Using the direct labor data where AH × AR = $84,000, AH × SR = $83,000, and SH × SR = $85,000, what is the direct labor cost variance?

Explanation:
The key idea is comparing what was actually spent on direct labor to what it should have cost (standard cost). The direct labor cost variance uses actual cost minus standard cost: DLCV = (AH × AR) − (SH × SR). Plugging in the numbers: actual cost = 84,000 and standard cost = 85,000. So DLCV = 84,000 − 85,000 = −1,000. A negative result means the actual cost was less than the standard cost, which is a favorable outcome. Therefore the direct labor cost variance is 1,000 favorable. In context, the other figures (AH × SR) are used to separate the total variance into rate and efficiency components, but the overall cost variance is simply the difference between actual cost and standard cost.

The key idea is comparing what was actually spent on direct labor to what it should have cost (standard cost). The direct labor cost variance uses actual cost minus standard cost: DLCV = (AH × AR) − (SH × SR).

Plugging in the numbers: actual cost = 84,000 and standard cost = 85,000. So DLCV = 84,000 − 85,000 = −1,000. A negative result means the actual cost was less than the standard cost, which is a favorable outcome. Therefore the direct labor cost variance is 1,000 favorable.

In context, the other figures (AH × SR) are used to separate the total variance into rate and efficiency components, but the overall cost variance is simply the difference between actual cost and standard cost.

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