Question

Problem 17-45 Labor Mix and Yield Variances (LO 17-4)

Matthews & Bros. is a local landscape construction company. In analyzing financial performance, the cost accountant compares actual results with a flexible budget. The standard direct labor rates used in the flexible budget are established each year at the time the annual plan is formulated and held constant for the entire year.

The standard direct labor rates in effect for the current fiscal year and the standard hours allowed for the actual output of work for July are shown in the following schedule:

Worker Classification		Standard Direct Labor Rate per Hour				Standard Direct Labor-Hours Allowed for Output
I		$	47			1,680
II			42			2,240
III			32			2,800

The wage rates for each labor class increased under the terms of a new contract. The standard wage rates were not revised to reflect the new contract.

The actual direct labor-hours worked and the actual direct labor rates per hour experienced for the month of July were as follows:

Worker Classification		Actual Direct Labor Rate per Hour				Actual Direct Labor-Hours
I		$	51			1,800
II			45			2,320
III			33			2,890

Required:

Calculate the dollar amount of the total direct labor variance for July for Matthews & Bros. and break down the total variance into the following components:

a. Direct labor price and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

	Direct labor price variance Efficiency variance

b. Direct labor mix and yield variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

	Direct labor mix variance

	Yield variance

Answer 1

Given that
	Budget
Workder classification	Standard rate / hr	Standard Direct Labor-Hours Allowed for Output	Standard hr ratio
I	47	1680	0.250
II	42	2240	0.333
III	32	2800	0.417
		6720	1
	Actuals
	Actuals rate / hr	Actuals Direct Labor-Hours
I	51	1800
II	45	2320
III	33	2890
		7010
Total Labor variance
	A	B	C	D	E	F	F = C-E
Workder classification	Actuals rate / hr	Actuals Direct Labor-Hours	Standard rate / hr	Standard Direct Labor-Hours Allowed for Output	Act Unit *Actuals rate	Standard Hr * Standard rate	Sale Price Variance
I	51	1800	47	1680	91800	78960	$        12,840	U
II	45	2320	42	2240	104400	94080	$        10,320	U
III	33	2890	32	2800	95370	89600	$          5,770	U
		7010		6720	291570	262640	$        28,930	U
a)-1 Direct labor price variance = (AH*AR)-(AH*SR)
Workder classification	Actuals Direct Labor-Hours	Actuals rate / hr	Standard rate / hr	Actuals hr * Actuals rate	Actuals hr * Standard rate	Labor price variance
I	1800	51	47	91800	84600	7200	U
II	2320	45	42	104400	97440	6960	U
III	2890	33	32	95370	92480	2890	U
	7010			291570	274520	17050	U
Hence answer is $17,050 U
a)-2 Direct labor effeciency variance = (AH*SR)-(SH*SR)
Workder classification	Actuals Direct Labor-Hours	Sthandard Labor hour	Standard rate / hr	Actuals hr * standard rate	Standard hr * Standard rate	Labor price variance	Remark
I	1800	1680	47	84600	78960	5640	U
II	2320	2240	42	97440	94080	3360	U
III	2890	2800	32	92480	89600	2880	U
	7010	6720	121	848210	813120	11880	U
Hence answer is $11,880 U
b)-1 Direct labor Mix variance = Actuals hr at actuals mix * Standard rate - Actuals hr at standard mix *Standard rate
Workder classification	Standard hr ratio	Actuals hr at standard mix	Actuals hr at actuals mix	Standard rate	Actuals hr at standard mix *Standard rate	Actuals hr at actuals mix *Standard rate	Labor price variance	Remark
I	0.250	1,753	1,800	47	82,368	84,600	2,233	U
II	0.333	2,337	2,320	42	98,140	97,440	(700)	F
III	0.417	2,921	2,890	32	93,467	92,480	(987)	U
	1	7,010	7,010		273,974	274,520	546	U
Direct labor mix variance = 545.83 U
b)-1 Direct labor yield variance = Actuals hr at standard mix *Standard rate - Standard HR * Standard Rate
Workder classification	Standard hr ratio	Actuals hr at standard mix	Standard hr	Standard rate	Actuals hr at standard mix * Standard rate	Standard hr * standard rate	Labor price variance	Remark
I	0.250	1,753	1680	47	82,368	78,960	3,408	U
II	0.333	2,337	2240	42	98,140	94,080	4,060	F
III	0.417	2,921	2800	32	93,467	89,600	3,867	U
	1	7,010	6720		273,974	262,640	11,334	U
Direct labor yield variance = 11,334 U