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Direct Labor Variances Ada Clothes Company produced 40,000 units during April. The Cutting Department used 12,800...

Direct Labor Variances

Ada Clothes Company produced 40,000 units during April. The Cutting Department used 12,800 direct labor hours at an actual rate of $16.50 per hour. The Sewing Department used 19,600 direct labor hours at an actual rate of $19.25 per hour. Assume there were no work in process inventories in either department at the beginning or end of the month. The standard labor rate is $18.00. The standard labor time for the Cutting and Sewing departments is 0.3 hour and 0.5 hour per unit, respectively.

a. Determine the direct labor rate, direct labor time, and total direct labor cost variance for the (1) Cutting Department and (2) Sewing Department. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Cutting Department Sewing Department
Direct Labor Rate Variance $   $  
Direct Labor Time Variance $   $  
Total Direct Labor Cost Variance $   $  

b. The two departments have opposite results. The Cutting Department has a(n)   rate variance and a(n)   time variance, resulting in a total   cost variance. In contrast, the Sewing Department has a(n)   rate variance but has a(n)   time variance, resulting in a total   cost variance.

Solutions

Expert Solution

Cutting department Sewing department
Direct Labour rate variance $19,200 (Favourable) $24,500( Unfavorable)
Direct Labour time variance $14,400(Unfavorable) $7,200(Favourable)
Total direct Labor cost variance $4,800(Favorable) $17,300( Unfavorable)

Explanation:

Cutting department:

Rate variance:

Direct Labour rate variance= (Actual rate per hour - Standard rate per hour)× Actual hours

=($16.50-$18)×12,800

=-$19,200( Favourable).

Time variance:

Direct Labour time variance= (Actual Direct labour hours - Standard direct Labour hours)× standard rate per hour

=(12,800-12,000*)×$18

=$14,400 Unfavorable

* 0.3×40,000 units

Total direct Labour cost variance= Direct Labour rate variance + Direct Labour time variance

=-$19,200+$14,400

=-$4,800 Favorable

Sewing department:

Direct Labour rate variance= (Actual rate per hour - Standard rate per hour)×Actual hours

=($19.25-$18)×19,600

=$24,500 Unfavorable

Direct Labour time variance =(Actual Direct Labour hours - Standard direct Labour hours)× Standard rate per hour

=(19,600 - 20,000*)×$18

=-$7,200 Favourable

* 0.5×40,000 units

Total direct Labour cost variance = Direct labour rate variance+ Direct labour time variance

=$24,500-$7,200

=$17,300 Unfavorable

b.

The two departments have opposite results. The Cutting Department has a favorable rate and an unfavorable time variance, resulting in a total favorable cost variance of $$4,800. In contrast, the Sewing Department has an unfavorable rate variance, but has a favorable time variance, resulting in a total unfavorable cost variance of $17,300. The causes of this disparity are worthy of investigation. There are many possible causes including tight or loose standards, inferior or superior operating methods, and inappropriate or appropriate use of overtime. Combining both departments, the overall operation shows an unfavorable cost variance of $12,500($4,800-$17,300), as a result of the weak performance in the Cutting Department.

____×___

All the best


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