A popular product of Loring glassworks is a hand-decorated vase.The company’s st

Question

A popular product of Loring glassworks is a hand-decorated vase.The company’s standard cost system calls for .75 hours ofdirect labor per vase, at a standard wage rate of $8.25. DuringSeptember, Loring produced 4,000 vases at an actual direct laborcost of $24,464 for 2,780 direct labor hours.

           What is the actual wage rate per hour? Compute the labor rate andefficiency variances for the month. Was paying workers the actualwage rather than the standard wage an efficient strategy forLoring?

Explanation / Answer

What is the actual wage rate per hour? Compute the labor rateand efficiency variances for the month. Was paying workers theactual wage rather than the standard wage an efficient strategy forLoring? Actual wage rate perhour       =       Actualdirect labor cost / actual direct labor hours                                              =         $24,464 /2,780      =   $8.80 Labor ratevariance      =   (Actual Rate - Standard Rate) x Actual labor hours                                    =      ($8.80- $8.25) x2,780      =   $1,529 U Labor efficiencyvariance   =   (Standard time foractual output - actual time) x Standard labor rate per hour                                          =   [(4,000x 0.75) - 2,780] x$8.25       =   $1,815F The strategy would depend upon several factorslike if there is shortage of skill workers in the market(standard cost should be revised) if there is increase in pay in similar industry (standardcost should be revised) if there are more orders to finish and overtime work isrequired. (No need to revise standard cost, since it is for timebeing only). The strategy would depend upon several factorslike if there is shortage of skill workers in the market(standard cost should be revised) if there is increase in pay in similar industry (standardcost should be revised) if there are more orders to finish and overtime work isrequired. (No need to revise standard cost, since it is for timebeing only).

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