In: Accounting
Adam Holmes is the Processing Manager of Empire Mortgage Company, a firm that processes loan applications for a number of regional builders. Home buying and therefore mortgage processing is a highly seasonal business, and requires temporary staff during busy processing periods. Holmes hires staff on a monthly basis from two different temporary staffing firms - Professional Temps (PT) and Support on Demand (SD). In June, Empire hired 14 staff members from PT and 10 from SD. PT is a more established firm and SD is a newly organized firm in the staffing market. Holmes has compiled the following information for June:
Budgets for June |
PT staff |
SD staff |
Budgeted hourly rate |
$50 |
$45 |
Budgeted time per app. (hours) |
1.2 |
1.4 |
Actual results for June |
PT staff |
SD staff |
Actual hourly rate |
$52 |
$47 |
Actual time per app. (hours) |
1.4 |
1.2 |
Number of actual apps completed |
2,604 |
1,600 |
Questions:
Empire Mortgage Company
Calculation of Labour variances:
Formulae:
Labour rate variance = (Standard Rate – Actual Rate) x Actual payment hours
Labour Efficiency variance = (Standard hours – Actual hours) x Standard rate
Solution (a)
Labour variances for 14 PT staff:
Labour rate variance = (Standard Rate – Actual Rate) x Actual payment hours
= (Standard Rate – Actual Rate) x (Actual time per app.) x (number of apps. completed)
= ($50 - $52) x 1.40 x 2,604
= $7291.20 (Adverse)
Labour Efficiency variance = (Standard hours – Actual hours) x Standard rate
= [(Standard hours per app. X number of app.) – (Actual time per App. X
number of apps.)] X Std. rate
= [(1.20 X 2,604) – (1.40 X 2,604)] X $50
= [3,124.80 – 3,645.60] X $50
=26,040 (Adverse)
Labour Cost variance = labour rate variance + labour efficiency variance
= $7,291.20 (Adverse) + $ 26,040 (Adverse)
= $33,331.20 (Adverse)
Solution (b)
Labour variances for 10 SD staff:
Labour rate variance = (Standard Rate – Actual Rate) x Actual payment hours
= (Standard Rate – Actual Rate) x (Actual time per app.) x (number of apps. completed)
= ($45 - $47) x 1.20 x 1,600
= $3840 (Adverse)
Labour Efficiency variance = (Standard hours – Actual hours) x Standard rate
= [(Standard hours per app. X number of app.) – (Actual time per App. X
number of apps.)] X Std. rate
= [(1.40 X 1,600) – (1.20 X 1,600)] X $45
= [2,240 – 1,920] X $45
=14,400 (Favourable)
Labour Cost variance = labour rate variance + labour efficiency variance
= $3,840 (Adverse) + $ 14,400 (Favourable)
= $10,560 (Favourable)
Comments: