Question
In: Accounting
Blackman Company manufactures a product that has a standard direct labor cost of four hours per...
Blackman Company manufactures a product that has a standard direct labor cost of four hours per unit at $24 per hour. In producing 6,000 units, the foreman used a different crew than usual, which resulted in a total labor cost of $26 per hour for 22,000 hours. Compute the labor variances and comment on the foreman’s decision to use a different crew.
Solutions
Expert Solution
Actual production = 6,000 units
Standard labor hours allowed = Actual production * Standard
labor hours per unit
Standard labor hours allowed = 6,000 * 4
Standard labor hours allowed = 24,000
Actual labor hours worked = 22,000
Actual rate per labor hour = $26
Standard rate per labor hour = $24
Labor rate variance = Actual labor hours worked * (Actual rate
per labor hour - Standard rate per labor hour)
Labor rate variance = 22,000 * ($26.00 - $24.00)
Labor rate variance = $44,000 Unfavorable
Labor efficiency variance = Standard rate per labor hour *
(Actual labor hours worked - Standard labor hours allowed)
Labor efficiency variance = $24.00 * (22,000 - 24,000)
Labor efficiency variance = $48,000 Favorable
Labor cost variance = Actual labor hours worked * Actual rate
per labor hour - Standard labor hours allowed * Standard rate per
labor hour
Labor cost variance = 22,000 * $26.00 - 24,000 * $24.00
Labor cost variance = $4,000 Favorable
The foreman’s decision cost extra labor cost but lead to less labor hour which in turns provided the favorable direct labor cost variance.
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