Lorng’s Music, a harmonica manufacturer, uses standard costs to judge performance. Recently, a clerk mistakenly threw away some of the records, and Lorng has only partial data for May. She knows that the direct labour flexible budget variance for the month was $360 F and that the standard labour price was $9 per hour. A recent pay cut caused a favourable labour price variance of $0.70 per hour. The standard direct labour hours for actual May output were 5,850.
Requirements
1. Find the actual number of direct labour hours worked during May. First, find the actual direct labour price per hour. Then, determine the actual number of direct labour hours worked by setting up the computation of the direct labour flexible budget variance of $360 F.
2. Compute the direct labour price and efficiency variances. Do these variances suggest that the manager may have made trade-offs? Explain.