Question

QUESTION 4 Answer the following questions. (a) Aztec, Inc.'s standard labor cost of producing one unit of product is 2 hours at the rate of RM14.00 per hour. During February, 52,000 hours of labor are incurred at a cost of RM13.80 per hour to produce 25,000 units of product. Toumalize the incurrence of the labor costs and the assignment of direct labor to production, assuming a standard cost system is used (6) Explain the similarities and differences between standards and budgets. (c) Contrast the accounting for standard and budgets. (d) Star Industries comptes variances as a basis for evaluating the performance of managers responsible for controlling costs. For several months, the labor quantity variance has been unfavorable. Briefly explain what could be causing the unfavorable labor quantity variance and indicate what type of corrective action, if any, might be taken

Answer 1

Solution:

PART-A

Particulars	Debit	Credit
Factory Labor	728,000
Labor Price Variance		10,400
Factory Wages Payable		71,600
Work in Process Inventory	700,000
Labor Quantity Variance	28,000
Factory Labor		728,000

　

Working:

Labor Price Variance = [(52,000 * $13.80) - (52,000 * $14.00)]

Labor Price Variance = [$717,600 - $728,000]

Labor Price Variance = $10,400 F

　

Labor Quantity Variance = (52,000 * $14.00) - (50,000 * $14.00)

Labor Quantity Variance = [$728,000 - $700,000]

Labor Quantity Variance = $28,000 U