The director of cost management for Portland 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 laborcontract.

Transcribed Image Text:

Standard Direct-Labor Rate per Hour $16.00 Standard Direct-Labor Hours Allowed, Given April Outpui Labor class IlIl Labor class II Labor class I 500 500 500 14.00 mm1000 Actual Direct-Labor Rate per Hour $17.20 Actual Direct-Labor Hours 550 650 Labor class II Labor class Il Labor class I . ..15.00 10.80