The director of cost management for Peoria Instrument Corporation compares each months actual results with a monthly

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. 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.
(CMA,adapted)

Transcribed Image Text:

Labor classII. Labor classll Labor classI Standard Direct-Labor Rate per Hour $24.00 2100 15.00 Standard Direct-Labor Hours Allowed, Given April Output 1,000 1,000 1,000 Labor class Il Labor class il Labor classI Actual Direct-Labor Rate per Hour $25.80 Actual Direct-Labor Hours 1,100 1.300 750 22.50 16.20