The director of cost management for Portland Instrument Corporation compares each month’s actual results with a monthly plan. The standard direct-labor rates for the year just ended and the standard hours allowed. given the actual output in April, are shown in the following schedule. Direct-Labor Variances
| Standard Direct-LaborRateper Hour | Standard Direct-LaborHours Allowed,Given April Output |
Labor class III | $ 16.00 | 500 |
Labor class II | 14.00 | 500 |
Labor class I | 10.00 | 500 |
A new union contract negotiated in March resulted in actual wage rates that differed from the standard rates. The actual direct-labor hours worked and the actual direct-labor rates per hour experienced for the month of April were as follows:
| Standard Direct-LaborRateper Hour | Standard Direct-LaborHours Allowed,Given April Output |
Labor class III | $ 17.20 | 550 |
Labor class II | 15.00 | 650 |
Labor class I | 10.80 | 375 |
Required:
1. Compute the following variances for April. Indicate whether each is favorable or unfavorable.
a. Direct-labor rate variance for each labor class.
b. Direct-labor efficiency variance for each labor class.
2. Discuss the advantages and disadvantages of a standard-costing system in which the standard direct-labor rates are not changed during the year to reflect such events as a new labor contract.
3. Build a spreadsheet:Construct an Excel spreadsheet to solve requirements (1) above. Show how the solution will change if the following information changes: the actual labor rates were $16.95. $15.10. and $10.60 for labor classes III,II and I. respectively.
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