Question: The director of cost management for Peoria
The director of cost management for Peoria 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.
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:
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 requirement (1) above. Show how the solution will change if the following information changes: the actual labor rates were $27.00, $22.90, and $17.00 for labor classes III, II, and I, respectively.
Transcribed Image Text:
Standard Direct-Labor Standard Direct-Labor Hours Rate per Hour Allowed, Given April Output Labor class II $24.00. 1,000 Labor class I| 21.00 1,000 Labor class I 15.00 1,000 Actual Direct-Labor Actual Direct-Labor Rate per Hour Hours Labor class I $25.80. 1,100 Labor class II 22.50 1,300 Labor class I. 16.20 750
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