Section 3 (5 marks)

Variance Analysis

Paulsons Piano Service, Inc. is trying to establish the standard labor cost of tuning a typical piano. The following data have been collected from time and motion studies conducted over the past three months.

Labor hours tuning:

Actual time spent on tuning a piano 1.25 hours

Setup and downtime 5% of actual labor hour

Travel and rest periods 15% of actual labor hour

Labor hour wage:

Hourly wage rate $50

Fringe benefits 20% of wage rate

Payroll taxes 12% of wage rate

Instructions

(a) Determine the standard direct labor hour per each piano that is tuned.

(b) Determine the standard direct labor hourly rate.

(c) Determine the standard direct labor cost per each piano that is tuned.

(d) If it took 1.65 hours to tune a piano at the standard hourly rate, what was the direct labor quantity variance?

(e) During the month of May, Paulsons Piano service tuned 80 pianos. The average time spent on each piano was 1.75 hours. The average cost per hour was $62.25 per hour. Paulsons had to hire some less experienced part-time help in order to handle the demand.

(1) Calculate the direct labor price variance.

(2) Calculate the direct labor quantity variance.

(3) Calculate the total direct labor variance.

(4) Explain what might have caused the variances.