Zinn Corporation recently agreed to a union contract provision that guarantees a minimum wage of $1,500 per month to each direct labour employee equivalent to 125 hours of work each month. Currently, 125 employees are covered by this provision. All direct labour employees are paid $12 per hour. Thus, until an employee works 125 hours, the remuneration is a fixed $1,500 per employee each month. Rusty Zinn, the assistant to the accountant was given the task of budgeting for the direct labour cost. Because of the contract provision, Rusty decided that the $187,500 (= 125 $1,500 per month) should be treated as a fixed monthly cost. Rusty was instructed to calculate each month's budget using the following formula: $187,500 + $9 per direct labour-hour.

Figures for the first three months of the fiscal year are as follows:

April May June Direct labour-hours planned and worked 30, 500 48, 900 68, 000 Direct labour costs budgeted $ 462, 000 $ 619, 500 $ 799, 500 Direct labour costs incurred $ 366, 000 $ 576, 000 $ 816, 000 Variance $ 96, 000 F $ 43, 500 F $ 16, 500 U