Lemke Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standard cost card for the company's only product is as follows: During the year, the company started and completed 12,300 units.Direct labor employees worked 10,540 hours at an average cost of $22.40 per hour. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash, Raw Materials, Work in Process, Finished Goods, and PP&E (net) .All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the direct labor cost is recorded, which of the following entries will be made?

A) $20,026 in the Labor Efficiency Variance column
B) $20,026 in the Labor Rate Variance column
C) ($20,026) in the Labor Rate Variance column
D) ($20,026) in the Labor Efficiency Variance column

Question

Lemke Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standard cost card for the company's only product is as follows:

During the year, the company started and completed 12,300 units.Direct labor employees worked 10,540 hours at an average cost of $22.40 per hour. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash, Raw Materials, Work in Process, Finished Goods, and PP&E (net) .All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the direct labor cost is recorded, which of the following entries will be made?

A) $20,026 in the Labor Efficiency Variance column
B) $20,026 in the Labor Rate Variance column
C) ($20,026) in the Labor Rate Variance column
D) ($20,026) in the Labor Efficiency Variance column

Roberi Dios_16 · Accepted Answer

Final Answer : C, Explanation :  Labor rate variance = AH × (AR - SR)= 10,540 hours × ($22.40 per hour - $20.50 per hour)= 10,540 hours × ($1.90 per hour)= $20,026 UFavorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

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