Question

Clunk, Inc. operates a machine shop in which the employees are members of Mechanics and Mattress Handlers Brotherhood, a trade union. The union has negotiated pay rates for each job. Last week a trainee grinder operator spent 42 hours working on a grinder, the full union rate for which was $15 per hour The trainee was paid $8 per hour. The work she performed could have been done by an experienced operator in 25 hours. 1. Clearly, the trainee was less efficient in performing the task than an experienced operator. How many additional dollars did it cost Clunk because of the trainee's inefficiency (the direct labor efficiency variance?) 2. Clearly, the trainee was cheaper than an experienced operator. How many dollars would the company have saved based on the lower wage rate, if the trainee had been able to do the job in the same amount of time as the experience operator (the direct labor rate variance?) 3. What was the total extra cost or savings to Clunk of using the trainee? Next → Previous

you dont have to do all 3 but i would appreciate.

Answer 1

Solution:

1) Direct labor efficiency variance = (Number of budgeted direct labor hours - Actual hours) x Standard rate

= (25 - 42) x $15 = $255 (U)

Therefore, additional dollars that Clunk had to pay due to inefficiency of trainee is $255.

2) Direct Labor rate variance = Actual hours x (Actual rate - Standard rate) = 42 x ($8 - $15) = $294 (F)

Additional dollars that the company would have saved on the lower wage rate if the trainee had been able to do the job in the same amount of time as that of the experienced labor amounts to $294