Question

Standards for Nonmanufacturing Expenses

CodeHead Software Inc. does software development. One important activity in software development is writing software code. The manager of the WordPro Development Team determined that the average software programmer could write 25 lines of code in an hour. The plan for the first week in May called for 4,650 lines of code to be written on the WordPro product. The WordPro Team has five programmers. Each programmer is hired from an employment firm that requires temporary employees to be hired for a minimum of a 40-hour week. Programmers are paid $32.00 per hour. The manager offered a bonus if the team could generate more lines for the week, without overtime. Due to a project emergency, the programmers wrote more code in the first week of May than planned. The actual amount of code written in the first week of May was 5,650 lines, without overtime. As a result, the bonus caused the average programmer's hourly rate to increase to $40.00 per hour during the first week in May.

Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. If an amount is zero, enter "0" and choose "Not applicable" from the dropdown.

Required:

1. If the team generated 4,650 lines of code according to the original plan, what would have been the labor time variance?
$

2. What was the actual labor time variance as a result of generating 5,650 lines of code?
$

3. What was the labor rate variance as a result of the bonus?
$

4. Are there any performance-related issues that the labor time and rate variances fail to consider?

The labor rate and time variances the number of errors in the code from programmer fatigue. A program that has will require significant time for debugging at a later date. Thus, managers the efficiency of doing the work and also the quality of the work.

5. The manager is trying to determine if a better decision would have been to hire a temporary programmer to meet the higher programming demand in the first week of May, rather than paying out the bonus. If another employee was hired from the employment firm, what would have been the labor time variance in the first week?
$

6. Which decision is better, paying the bonus or hiring another programmer?

Answer 1

	The answer to the following requrements
1	Requirement
	Calculation of labour time variance
	labour Time Variance	(Actual Hrs-Standard Hrs)*Standard Rate
	Actual Hrs taken	5 Programmers *40 hrs /week
		200 hrs
	Standard hrs for actual production
		4650 Lines /25
		186 hrs
	Standard Rate	$32
	Hence
	labour Time Variance
		(200-186)*32
		$448 Adv/Unfavorable
2	labour Time Variance	(Actual Hrs-Standard Hrs)*Standard Rate
	Actual Hrs taken	5 Programmers *40 hrs /week
		200 hrs
	Standard hrs for actual production
		5650 Lines /25
		226 Hrs
	Standard Rate	$32
	Hence
	labour Time Variance
		(200-226)*32
		($832) Favourable
3	Requirement
	Calculation of labour Rate Variance
	labour Rate variance	(Actual rate-Standard rate)*Actual Hrs
	Actual rate	$40
	Standard rate	$32
	Actual Hrs	200 Hrs
	Labour Rate Variance	(40-32)*200
		$1600 Adv /Unfavourable
	Labour Cost Variance
		($1600 unfavorable rate variance -$832 F Time Variance)
		$768 Adv/Unfavorable
5	Calculation of labour Time Variance
	Labour Time Variance	(Actual Hrs-Standard Hrs)*Standard Rate
	Actual Hrs taken	6 Programmers *40 hrs week
		240 Hrs
	Standard Hrs for Actual Production
		5650 line/25
		226 hrs
	Standard Rate	$32
	Labour TimeVariance
		(240-226)*32
		$448 Adv/Unfavourable
6	Hiring an extra employee is more costly than the bonus .
	The cost variance for paying bonus was $768 Adv/Unfavorable ($1600 Adv/U+$832)
	while the cost variance that would result from hiring another employee would
	have been $448 U/Adv
	Note that there will be no labour rate variance if a fifth programmer is hired.
4	the labour rate and time variances fail to consider the number of errors in the code
	from programmer faigue.A program that has many errors will require significant
	time for debugging at a later date.In addition hidden errors can cause possible
	field failures with customers.Thus managers should consider not only the efficiency of
	doing work but also the quality.