Galasso & Associates is trying to establish the standard labor cost of a typical

Question

Galasso & Associates is trying to establish the standard labor cost of a typical Fire District audit. The following data has been collected:

Actual labor time spent on the audit: 200 hours

Hourly wage rate: $30.00

Payroll taxes: 10% of wage rate

Partner and Quality Control Review: 10% of actual labor time

Fringe benefits: 30% of wage rate

Instructions (a) Determine the standard direct labor hours per audit (b) Determine the standard direct labor hourly rate. (c) Determine the standard direct labor cost per audit. (d) If an audit actually takes 250 hours to complete, using standard hourly rate calculated in (b), what will the direct labor cost variance (hint compare to the standard direct labor cost for the audit)?

Explanation / Answer

a) Actual labor time spent on the audit 200 Partner & quality control review (200*10%) 20 standard direct labor hours per audit 220 Hours b) Hourly wage rate 30 Payroll taxes (30*10%) 3 Fringe benefits (30*30%) 9 standard direct labor hourly rate 42 c) standard direct labor cost per audit= standard direct labor hours per audit*standard direct labor hourly rate=220*42=$ 9240 d) direct labor cost variance=standard direct labor hourly rate*( standard direct labor hours per audit-Actual direct labor hours per audit)=42*(220-250)=-1260=1260 U

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