Shade Company adopted a standard cost system several years ago. The standard costs for direct labor and direct materials for its single product are as follows: Materials (5 kilograms × $12/kilogram) = $60/unit; direct labor (3.5 hours/unit × $20/hour) = $70/unit. All materials are issued at the beginning of processing. The operating data shown below were taken from the records for December:

In-process beginning inventory None In-process ending inventory—80% complete as to labor 1,010units Units completed during the period 6,800units Budgeted output 7,350units Purchases of materials (in kilograms) 42,500 Total actual direct labor cost incurred$537,030 Direct labor hours worked (AQ) 27,000hours Materials purchase-price variance$3,825favorable Increase in materials inventory in December 2,800kilograms

The direct labor flexible-budget variance for December (rounded to the nearest dollar) was:

$4,470 unfavorable

1. Direct labor flexible-budget (FB) variance = Labor rate variance + Labor efficiency variance

2. Standard direct labor rate per hour, SP = $20 per hour (given).

3. Labor efficiency variance = (AQ ? SQ) × SP = [27,000 hrs. ? ((6,800 units + (1,010 units × 0.8)) × 3.5 hours/unit)] × $20/hour = [27,000 ? 26,628] hours × $20/hr. = $7,440 unfavorable.

4. Actual direct labor rate per hour, AP = ($537,030 (given)/27,000 hours (given)) = $19.89/hour.

5. DL rate variance = (AP ? SP) × AQ = [($19.89 ? $20)/hour × 27,000 hours (given)] = $0.11/hour favorable × 27,000 hours = $2,970 favorable.

6. Direct labor flexible-budget variance = Direct labor rate variance + Labor efficiency variance = $2,970F + $7,440U = $4,470U (alternatively, this variance is calculated as the difference between the actual labor costs of the period and the flexible-budget labor costs: $537,030 (given) ? $532,560 (26,628 hours × $20/hour) = $4,470U (rounded to the nearest dollar).
Note: the variance here is unfavorable (U) because the actual direct labor cost incurred ($537,030) during the period > budgeted direct labor cost for the units produced during the period ($532,560).