Grip\'s accountant wishes you to prepare the flexible budget variances for direc
ID: 2478084 • Letter: G
Question
Grip's accountant wishes you to prepare the flexible budget variances for direct labor. You are provided with the following standard and actual data for direct labor: Prepare the following flexible budget variances for direct labor clearly indicating whether each variance is favorable or unfavorable: Labor rate (i.e/price) variance Labor efficiency variance Total direct labor cost variance (i.e. the total flexible budget cost variance for direct labor) Using your results from parts i) to iii), briefly explain explain whether the company's sourcing and use of direct labor were better or worse than planned during 2015.Explanation / Answer
Standard Actual Hourly Rate for direct labor 30 12 Labor Hours needed per unit (i.e. per tire) 2 3.5 Actual units/tires produced during 2015 7000 Labor Rate Variance = AQ(AR-SR) 24500(12-30) -441000 Favorable Labor Efficiency Variance = (SQ-AQ)*SR 7000(3.5-2)*30 315000 Unfavorable Total Direct labor cost variance = TSC - TAC 294000 TAC 420000 TSC 126000 TCV Company sourcing is better and use of direct labour is worsen
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