The labor rate variance for October is $39,820 and it is an unfavorable variance.
The labor rate variance is the difference between the actual rate and predicted labor costs. It is computed by
Labor rate variance = (Actual rate - Standard rate) x Actual hours
An unfavorable variance means that the cost of labor was higher than expected, whereas a favorable variance suggests that the cost of work was lower than planned. This data can be used in the establishment of future budgets for planning purposes.
Parameters given in the problem:
standard rate = $4 per hour
actual hours = 11,000
Since one finished unit needs 1 hour of direct labor, then
actual rate = $40,000/5,250 = $7.62 per hour
Hence,
Labor rate variance = (7.62 - 4) x 11,000 = $39,820
Since the actual rate is higher than the standard rate, the variance is unfavorable.
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