The Worldwide Credit Card Company uses standards to control the labor time invol

Question

The Worldwide Credit Card Company uses standards to control the labor time involved in opening mail from card holders and recording the enclosed remittances. Incoming mail is gathered into batches, and a standard time is set of opening and recording each batch. The labor standards relating to one batch are given below:



Standard Standard Standard
Hours Rate Cost
Per Batch 2.5 $6 $15

The record showing the time spend last week in opening batches of mail has been misplaced. However, the batch supervisor recalls that 168 batches were received and opened during the week, and the controller recalls the following variance data relating to these batches:

Total labor variance................$330 Unfavorable
Labor price variance.................$150 Favorable

Required:
1. Determine the number of actual labor-hours spent opening batches during the week.
2. Determine the actual hourly rate paid to employees for opening batches last week.

Explanation / Answer

1) Labor efficiency variance + Labor rate variance = Total labor spending variance

since Labor efficiency variance = SR(AH - SH), we are given the other two values therefore we get the following

SR(AH - SH) + 51 = 546 which after plugging in the given standard known values becomes

4.5(AH - (160*2.5)) = 495

AH = 510 hrs

2) Labor rate variance = AH(AR-SR) which is equal to 51 (given)

510(AR - 4.5) = 51

AR = $4.60

The above answer is correct but this way is how I do it which involves less equation manipulation and seems somewhat easier to follow

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