Affordable Electronics Inc. manufactures medium-quality, reasonably priced DVD p

Question

Affordable Electronics Inc. manufactures medium-quality, reasonably priced DVD players. The company uses standards to control its costs. The labour standards that have been set for one player are as follows: Standard Hours Standard Rate per Hour $16.00 Cost $4.80 18 minutes (0.30 hours) During July, 8,050 hours of direct labour time were recorded to make 26,000 units. The direct labour cost totalled $132,020 for the month. Required: 1-a. What direct labour cost should have been incurred to make the 26,000 DVD players? (Do not round intermediate calculations.) Direct labour cost 1-b. By how much does direct labour cost differ from the cost that was incurred? (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Total variance Break down the difference in cost from requirement 1-b above into a labour rate variance and a labour efficiency variance. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) 2. Labour rate variance Labour efficiency variance

Explanation / Answer

1a) Direct labour cost = (26000*18/60*16) = 124800

1b) Total variance = 124800-132020 = 7220 U

2) Labour rate variance = (16*8050-132020) = 3220 U

Labour efficiency variance = (7800-8050)*16 = 4000 U

3) Variable overhead rate variance = (3*8050-24955) = 805 U

Variable overhead efficiency variance = (7800-8050)*3 = 750 U

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