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:

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. 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.

  • CreatedApril 22, 2014
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