Assume that Nortel manufactures specialty electronic circuitry through a unique

Question

Assume that Nortel manufactures specialty electronic circuitry through a unique photoelectronic process. One of the primary products, Model ZX40, has a standard labor time of 0.5 hour and a standard labor rate of $13.00 per hour. During February, the following activities pertaining to direct labor for ZX40 were recorded: Direct labor hours used 2,180 Direct labor cost $32,000 Units of ZX40 manufactured 4,600 (a) Determine the labor rate variance. $ (b) Determine the labor efficiency variance. $ (c) Determine the total flexible budget labor cost

Explanation / Answer

Answer:

a) Labor rate variance = (Standard rate per hour - Actual rate per hour) * Actual hours used

= (13 - 14.6789) * 2,180 = $3,660 (Unfavorable)

Wroking:

Actual rate per hour = Actual labor cost / Actual hours used = 32,000 / 2,180 = $14.6789

b) Labor efficiency variance = [(Standard hours) -Actual labor hours used] * Standard rate per hour

= [ (0.5*4,600) - 2,180 ] * 13 = $1,560 (Favorable)

c) Flexible Budget labor cost for 4,600 units manufactured:

Standard labor hours = Hour per unit * No. of units manufactured = 0.5 * 4,600 = 2300 hours

Therefore, Standard labor cost = Satndard hours * Standard rate per hour = 2300 * 13 = $29,900

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