Detailed Answer
Answer (D) is correct.
Since 160 cars were serviced and each car requires 1/4 of an hour to
service, the “expected” quantity of hours, that is, the quantity that should
have been expended given the achieved level of production, was 40 (160
× .25). The actual number of hours expended can be found by
substituting in the formula for the efficiency variance:
(EQ – AQ) × SP = Labor efficiency variance
(40 – AQ) × $7.00 = $14 F
40 – AQ = 2
AQ = 38
Substituting again allows us to derive the actual wage rate paid:
AQ × (SP – AP) = Labor rate variance
38 × ($7.00 – AP) = $19 U
($7.00 – AP) = .5
AP = $7.50