A union contract agreement calling for an immediate 4 percent increase in production worker wages was signed. No changes were made in the standards. Indicate which of the following standard cost variances would be affected. More than one variance will be affected in some areas.
a. Materials price variance
b. Materials quantity variance
c. Labor rate variance
d. Labor efficiency variance
e. Variable overhead spending variance
f. Variable overhead efficiency variance
g. Fixed overhead budget variance

4 percent Increase in Production Worker Wages

Indication of the standard cost variances affected:

c. Labor rate variance

e. Variable overhead spending variance

Explanation:

An increase in production workers wages as a result of workers' union agreement with management will affect the labor rate variance and the variable overhead spending variance.  Production workers are factory or manufacturing workers.  The expenses incurred on them include the direct labor costs and the indirect labor costs.  Direct labor cost is a function of the rate of pay and hours worked or any other parameter used for paying their wages.  Indirect labor cost is influenced by the wages of indirect labor in the production unit, like factory supervisors.

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