University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
Views:

446

Pages:

15
Author:

Reilly Tran

Chapter 8 Standard Costs Part 3 Learning Objective LO3 To compute the direct labor rate and efficiency variances and explain their significance 8-42 Labor Variances Example Glacier Peak Outfitters has the following direct labor standard for its mountain parka. 1.2 standard hours per parka at $10.00 per hour Last month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000 parkas. 8-43 Labor Variances Summary Actual Hours × Actual Rate Actual Hours × Standard Rate Standard Hours × Standard Rate 2,500 hours × $10.50 per hour 2,500 hours × $10.00 per hour. 2,400 hours × $10.00 per hour = $26,250 = $25,000 Rate variance $1,250 unfavorable = $24,000 Efficiency variance $1,000 unfavorable 8-44 Labor Variances Summary Actual Hours × Actual Rate 2,500 hours × $10.50 per hour = $26,250 Actual Hours × Standard Rate Standard Hours × Standard Rate 2,500 hours 2,400 hours × ÷ 2,500 hours × $26,250 $10.00 per hour. = $10.50 per hour $10.00 per hour = $25,000 Rate variance $1,250 unfavorable = $24,000 Efficiency variance $1,000 unfavorable 8-45 Labor Variances Summary Actual Hours × Actual Rate Actual Hours × Standard Rate Standard Hours × Standard Rate 2,500 hours 2,500 hours 2,400 hours × × 1.2 hours per ×parka × 2,000 $10.50 per hour parkas $10.00 per hour. $10.00 per hour = 2,400 hours = $26,250 = $25,000 Rate variance $1,250 unfavorable = $24,000 Efficiency variance $1,000 unfavorable 8-46 Labor Variances: Using the Factored Equations Labor rate variance LRV = AH (AR - SR) = 2,500 hours ($10.50 per hour – $10.00 per hour) = 2,500 hours ($0.50 per hour) = $1,250 unfavorable Labor efficiency variance LEV = SR (AH - SH) = $10.00 per hour (2,500 hours – 2,400 hours) = $10.00 per hour (100 hours) = $1,000 unfavorable 8-47 Responsibility for Labor Variances Production managers are usually held accountable for labor variances because they can influence the: Mix of skill levels assigned to work tasks. Level of employee motivation. Quality of production supervision. Production Manager Quality of training provided to employees. 8-48 Responsibility for Labor Variances I am not responsible for the unfavorable labor efficiency variance! You purchased cheap material, so it took more time to process it. I think it took more time to process the materials because the Maintenance Department has poorly maintained your equipment. 8-49 Quick Check  Zippy Hanson Inc. has the following direct labor standard to manufacture one Zippy: 1.5 standard hours per Zippy at $12.00 per direct labor hour Last week, 1,550 direct labor hours were worked at a total labor cost of $18,910 to make 1,000 Zippies. 8-50 Quick Check  Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. d. $300 favorable. 8-51 Quick Check  Zippy Hanson’s labor rate variance (LRV) for the week was: a. $310 unfavorable. b. $310 favorable. c. $300 unfavorable. LRV = AH(AR - SR) LRV = 1,550 hrs($12.20 - $12.00) d. $300 favorable. LRV = $310 unfavorable 8-52 Quick Check  Zippy Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. 8-53 Quick Check  Zippy Hanson’s labor efficiency variance (LEV) for the week was: a. $590 unfavorable. b. $590 favorable. c. $600 unfavorable. d. $600 favorable. LEV = SR(AH - SH) LEV = $12.00(1,550 hrs - 1,500 hrs) LEV = $600 unfavorable 8-54 Quick Check  Actual Hours × Actual Rate Actual Hours × Standard Rate 1,550 hours × $12.20 per hour 1,550 hours × $12.00 per hour = $18,910 = $18,600 Rate variance $310 unfavorable Zippy Standard Hours × Standard Rate 1,500 hours × $12.00 per hour = $18,000 Efficiency variance $600 unfavorable 8-55