Question

Affordable Electronics Inc. manufactures medium-quality, reasonably priced wireless speakers for home use. The company uses standards to control its costs. The labour standards that have been set for one speaker are as follows

Standard Hours	Standard Rate per Hour	Standard Cost
12 minutes (0.2 hours)	$15.00	$3.00

During July, 3,400 hours of direct labour time were recorded to make 16,000 units. The direct labour cost totalled $49,300 for the month.

 

Required:

1. What direct labour cost should have been incurred to make the 16,000 speakers? By how much does this differ from the cost that was incurred?

Answer 1

Number of units manufactured..........................................................................16,000

Standard labour time per unit (12 minutes ÷ 60 minutes per hour).............................................................................................................................×   0.2

Total standard hours of labour time allowed...................................................3,200

Standard direct labour rate per hour.............................................................×    $15

Total standard direct labour cost.....................................................................$48,000

 

Actual direct labour cost....................................................................................$49,300

Standard direct labour cost.................................................................................48,000

Total variance x unfavourable............................................................................$ 1,300

Total standard direct labour cost = $48,000

Total variance - unfavourable = $ 1,300