Question

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.

Questions:

1. Determine the labor rate and efficiency variances for (a) the 14 PT staff and (b) the 10 SD staff hired in June.
2. Comment on the efficiency of the PT and SD staff hired by Empire Mortgage.

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

Answer 1

A)Labor Rate variance = Actual Hours [Actual rate per hour- standard rate per hour]

Labor rate variance	Actual Hours(Actual app completed *Actual time per app )	*	(Actual Rate per Hour	-	Standard rate per hour )
PT staff	2604*1.4=3645.60	*	(52	-	50)
	3645.60 * 2 7291.20 U

Labor Efficiency variance = Standard rate per hour *(Actual Hours -standard hours for actual output)

Labor efficiency variance	Standard rate per Hour	*	(Actual Hours	-	Standard hours for actual output)
PT staff	50	*	(3645.60	-	3124.8
	50 * 520.8 26040 U

**Standard Hours for actual output = Actual output *standard hours per unit

                                = 2604 *1.2

                                = 3124.8 Hours

B)

Labor Rate variance	Actual Hours(Actual app completed *Actual time per app )	*	(Actual Rate per Hour	-	Standard rate per hour )
SD staff	1600*1.2 =1920	*	(47	-	45)
	1920 * 2       3840 U

Labor efficiency variance =	Standard rate per Hour	*	(Actual Hours	-	Standard hours for actual output)
SD staff	45	*	(1920	-	2240)
	45 * -320 -14400 F

**Standard Hours for actual output = Actual output *standard hours per unit

                                = 1600 * 1.4

                                = 2240 Hours

Comments on efficiency variance :

PT staff efficiency variance is Unfavorable it means PT staff is inefficient in utilizing its Labor Hours .

SD staff efficiency variance is favorable it means SD staff is efficient in utilizing its labor hours.