Question

Following is a partially completed performance report for a recent week for direct labor in the binding department of a book publisher: Original Budget Flexed Budget Actual Budget Variance Direct labor $ 19,200 $ 20,130 The original budget is based on the expectation that 7,800 books would be bound; the standard is 13 books per hour at a pay rate of $32 per hour. During the week, 8,320 books were actually bound. Employees worked 610 hours at an actual total cost of $20,130.

Required: a. Calculate the flexed budget amount against which actual performance should be evaluated and then calculate the budget variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

b. Calculate the direct labor efficiency variance in terms of hours. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

c. Calculate the direct labor rate variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Answer 1

• All working forms part of the answer
• Requirement ‘a’

Flexed Budget amount = 8320 books x 1/13 x $ 32 per hour = $ 20,480

Budget Variance = $ 20480 - $ 20130 = $ 350 Favourable

If calculated with Planned Activity, variance will be $ 930 Unfavourable.

• Requirement ‘b’

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	640	-	610	)	x	$                        32.00
	960
	Variance		$                  960.00			Favourable-F

Answer = $ 960 F

• Requirement ‘c’

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                     32.00	-	$                    33.00	)	x	610
	-610
	Variance		$                  610.00			Unfavourable-U

Answer = $ 610 U