Standard Costs and Variance Analysis Paper 9

Answer (B) is correct. The direct labor rate variance is determined by multiplying the actual hours worked by the difference between the standard and actual rates. The standard rate equals the direct labor efficiency variance divided by the difference between the standard and actual hours. The actual rate equals the total direct labor payroll divided by the actual hours. $3,840 ÷ (41,200 – 42,000) = $ 4.80 SR $247,200 ÷ 41,200 = 6.00 AR $ 1.20 diff. × 41,200 AH DL rate variance = $ 49,440 U

Answer (D) is correct. The direct labor rate variance equals the actual hours worked times the difference between the standard and actual rates. When the standard rate exceeds the actual rate, the variance is favorable: AH × (SR – AR) = favorable rate variance 10,000 × (SR – $8.25) = $5,600 F SR – $8.25 = $.56 SR = $8.81

Answer (D) is correct. The standard hours allowed equaled 3,000, and the labor efficiency variance was $1,870 unfavorable; that is, actual hours exceeded standard hours. The labor efficiency variance equals the standard rate ($8.50) times the excess hours. Given that the variance is $1,870, 220 excess hours ($1,870 ÷ $8.50) must have been worked. Thus, 3,220 actual hours (3,000 standard + 220 excess) were worked.

Answer (A) is correct. When the actual direct labor rate is unknown, the total direct labor payroll can be found by multiplying the actual hours by the standard rate, then subtracting the favorable labor variance. (32,000 × $5.04) $6,720 = $154,560

Answer (C) is correct. A favorable labor rate variance means the company is using lower-paid workers than what the standard-setters thought should be used. These workers are apparently less experienced or otherwise less skilled. As a result, the use of lower-paid workers may lead to an unfavorable labor efficiency variance or an unfavorable materials usage variance as the lower-skilled workers require more hours or more materials than would more skilled employees.

Answer (D) is correct. Since 160 cars were serviced and each car requires 1/4 of an hour to service, the “expected” quantity of hours, that is, the quantity that should have been expended given the achieved level of production, was 40 (160 × .25). The actual number of hours expended can be found by substituting in the formula for the efficiency variance: (EQ – AQ) × SP = Labor efficiency variance (40 – AQ) × $7.00 = $14 F 40 – AQ = 2 AQ = 38 Substituting again allows us to derive the actual wage rate paid: AQ × (SP – AP) = Labor rate variance 38 × ($7.00 – AP) = $19 U ($7.00 – AP) = .5 AP = $7.50

Answer (D) is correct. The standard inputs per unit of output can be determined by dividing the budgeted total input hours (10,000) by the budgeted total output level (5,000), giving 2 hours of direct labor for every finished unit. Since the actual output level was 6,000, the “expected” quantity, or number of hours allowed given the achieved level of production, was 12,000 (6,000 × 2). These amounts can be substituted in the formula for the efficiency variance: (EQ – AQ) × SP = Labor efficiency variance (12,000 – AQ) × $15 = $1,500 U 12,000 – AQ = 100 AQ = 12,100

Answer (A) is correct. Any flexible budget variance for direct labor (or direct subdivided into two component variances, the rate (price) variance and the efficiency (quantity, usage) variance.

Answer (C) is correct. The total variance for labor consists of a price (rate) variance and an efficiency (usage) variance. Since the total variance is $15,000 favorable, the price variance must be $33,000 favorable (–$18,000 + $33,000 = $15,000).

Answer (D) is correct. No variance by itself is either good or bad. Everything depends on context and what can be revealed by the component variances (if any) of a given variance. For example, a favorable direct materials variance may reflect unrealistically pessimistic standards for materials usage, while a favorable labor variance may reflect workers rushing the process and producing inferior goods.