Question

In: Accounting

Angela is worried about her labour costs. She budgeted that each of her products would take...

Angela is worried about her labour costs. She budgeted that each of her products would take 1.33 hours to complete at a rate of $26 per direct labour hour. This month, Angela’s business has produced 1,850 products. She has paid her workers a total of $55,500 in wages. Additionally, there is a 5% CPP expense which must also be paid (Angela includes this in her budgeting). Angela also gave a $500 bonus to all fourteen of her workers, since they have been working hard through long hours. Prepare a variance analysis model and give her some advice on if she is doing well and, if not, how things can be improved. Discuss all relevant factors, including more information that you may request from Angela and further analysis you would like to do.

Solutions

Expert Solution

Budgeted

Time for 1 product = 1.33 hours

Labour cost per hour = $26

Actual

Production = 1850 products

Labour wage paid = $55500

From labour wage we can calculate no. Of hours taken = 55500/26 = 2134.6 hours

Budgeted hours = 1850 * 1.33 = 2460.5

So we can see there is a favourable variance here of 325.4 hours. It was budgeted to take 2460.5 hours but took only 2134.6 hours.

In terms of labour wage paid

According to budget = 2460.5 * $26 = $63973

She also paid a bonus to all 14 employees of 500 each.

Total = $55500 + $7000 = $62500

This is still lower than the budgeted cost which would have been $ 63973 so again it is favourable for Angela.

Since the 5% CPP is already included in budgeted we dont need to worry about it.

From the above we can say that Angela is doing fairly well and can continue in the same way. That is in regards to the information that we have in hand right now! Things could be different if more information is obtained. But at present things look good.

Hope this answers the question. If yiu liked the answer, please give an up-vote. It would be highly encouraging for me. Thank You.


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