Question

Assume the following set of facts for questions 5-6.

Puig corp. has developed some standard costs for the year based on a capacity of 180,000 direct labor hours as follows (Puig uses direct labor hours as a base for overhead):

Cost per unit:

direct materials        4 pounds @ $7 = $28

fixed overhead          2 hours @ $4 =   8

During the year, 90,000 units were scheduled for production; however, only 80,000 units were actually produced. The following data relate to the year:

Direct labor efficiency variance $20,000 u.

Actual direct labor hours were 165,000.

The denominator level of volume was 180,000 direct labor    hours.

____ 5. The standard wage per hour for direct labor is:

(a) $ 6

(b) $ 5

(c) $ 4

(d) $ 3

(e) none of the above, the correct answer is ________.

___ 6. The production volume variance for the year is:

(a) $60,000 f

(b) $60,000 u

(c) $30,000 u

(d) $30,000 f

(e) none of the above, the correct answer is _________.

Answer 1

Sol 5)	D.Labor efficiency variance =			(Standard Hours - Actual Hours) x Standard Rate
		$ (20,000.00)	=	($ 160000 - $ 165000) x Standard Rate
		$ (20,000.00)	=	$ (5,000.00)	x Standard Rate
		$              4.00	=	Standard Rate

Workings:

	Standard Hours Computation:
	For 90,000 units, standard D.Labor hours =				180000
Therefore,	For 80,000 units, standard D.Labor hours =				(180000/90000) x 80000
				=	160000	hours

6)	Data for Production Volume Variance
a)	Budgeted Hour for Budgeted Unit				180000	hrs
b)	Actual Hour				165000	hrs
c)	Budgeted Hour for Actual unit			(Standard)	160000	hrs
d)	Recovery Rate		(Fixed OH)		$               4.00	per hour
e)	Budgeted Overhead		(a x d)		$ 720,000.00
f)	Recovered Overhead		(c x d)		$ 640,000.00

Production volume Variance =			Recovered OH - Budgeted OH
		=	$ 720000 - $ 640000
		=	$ 80000	(F)