Question

A. Alberto Gonzalez operates a commercial painting business in Tampa, which has a very tight labor market. Much of his work focuses on newly constructed apartments and townhouses. The following data relate to crew no. 5 for a recently concluded period when 85 apartment units were painted: · Three new employees were assigned to crew no. 5. Wages averaged $18.80 per hour for each employee; the crew took 2,550 hours to complete the work. · Based on his knowledge of the operation, articles in trade journals, and conversations with other painters, Gonzalez established the following standards: Typical hourly wage rate of crew personnel: $15 Anticipated crew time for each unit: 34 hours · The paint quantity variance was $6,070F. · The operation did not go as smoothly as planned, with customer complaints and problems being much higher than expected.

Required:

a. Compute Gonzalez’s direct-labor variances.

b. Is the direct-labor rate variance consistent with what you might expect in a tight labor market? Explain.

c. Analyze the information given and that you calculated, and determine what likely happened that would give rise to customer complaints.

Answer 1

A.Direct Labour Variance = $ 4,590 (Adverse)

B. Direct labour rate variance is $9,690 (adverse) which indicates per hour wage rate is $3.8 more than the standard of $15, considering the tight market the rate is high by 25% of the standard rate of $15 which is reasonably high.

C. Positive Paint quantity variance indicate the labourers have completed the painting work with lesser than the standard requirement by $ 6,070. Considering the labour rate variance , paint quantity variance and labour time variance indocates higher wage rate per hour was paid to labourers possibly due to higher demand or higher experiance in the field as the work was completed within the standard alloted time also the material used are below the standard allocation indicates skilled men were hired, However greater customer complaints indicate lesser attention seem to have been given towards details or quality of the work done and more emphasis has been given to meet the standard timeline i.e completing the work within the alloted time and alloted resource and quality of work taking a secondry preferance.

Working note:

Particulars	Standard Rate	Revised Standard for Actual units (i.e 85 units)	Actual Details
Hourly Wage Rate	$15	$ 15	$18.80
Crew Time for Each Unit	34 hours	2,890	2,550
Total Cost	$ 510	$ 43,350	$ 47,940

Labour Cost Variance = Standard Labour - Actual Labour

= 43,350-47,940

= 4,590 (Adverse )

Labour Rate Variance= (SR -AR) * AH

=(15-18.80)*2550

=9,690( Adverse)

Labour Time Variance = (SH -AH)* SR

= (2,890-2,550)*15

= 5,100 (Favourable)