What department is usually responsible for a direct labor rate variance? What department is usually responsible for a direct labor efficiency variance? Explain.
|Direct labor rate variance||Human resource department|
|Direct labor efficiency variance||Product department|
In technical terms, human asset denotes the labor force working in an organization to accomplish common goals stated by the upper management. The human asset consists of individuals known as employees or team members.
Usually, for direct labor rate, the human resource department of a company is held responsible because such department has the authority to determine and decide the labor rates and evaluates the variances for performance review of the human asset.
In addition, the production department of an entity is held responsible for the direct labor efficiency variance because the labor force performs its assigned task in such a department, and the production department’s head analyzes their performance.
City Company’s fixed budget performance report for July follows. The $647,500 budgeted total expenses include $487,500 variable expenses and $160,000 fixed expenses. Actual expenses include $158,000 fixed expenses. Prepare a flexible budget performance report that shows any variances between budgeted results and actual results. List fixed and variable expenses separately.
Fixed Budget Actual Results Variances
Sales (in units) 7,500 7,200
Sales (in dollars) $750,000 $737,000 $13,000 U
Total expenses 647,500 641,000 6,500 F
Income from operations $102,500 $96,000 $6,500 U
Match the terms a through e with their correct definition 1 through 5.
a. Standard cost card 1. Quantity of input required under normal
b. Management by exception 2. Quantity of input required if a production process
is 100% efficient.
c. Standard cost 3. Managing by focusing on large differences from
d. Ideal standard 4. Record that accumulates standard cost
e. Practical standard 5. Preset cost for delivering a product or service
under normal conditions.
Reed Corp. has set the following standard direct materials and direct labor costs per unit for the product it manufactures.
Direct materials (10 lbs. @ $3 per lb.) $30
Direct labor (2 hrs. @ $12 per hr.) 24
During June the company incurred the following actual costs to produce 9,000 units.
Direct materials (92,000 lbs. @ $2.95 per lb.) $271,400
Direct labor (18,800 hrs. @ $12.05 per hr.) 226,540
Compute the (1) direct materials price and quantity variances and (2) direct labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.
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