Norma Tuck is manager of The Tax Experts, a firm that provides assistance in the

Question

Norma Tuck is manager of The Tax Experts, a firm that provides assistance in the preparation of individual tax returns. Because of the highly seasonal nature of her business, Tuck hires staff on a monthly basis from two accounting placement firms - Professional Assist (PA) and Office Support (OS). In February, The Tax Experts hired 12 staff members from PA and 10 from OS. PA is the prestige firm in its area. OS is a recently formed firm. Tuck has compiled the following information for February:




Budgets for February


PA staff


OS staff




Budgeted hourly rate


$45


$40




Budgeted time per tax return in hours


0.40


0.50




Actual results for February


PA staff


OS staff




Actual hourly rate


$48


$42




Actual time per tax return in hours


0.42


0.46




Number of actual tax returns completed


4,608


3,600


Questions:

Explanation / Answer

Budgets for February PA staff (12) OS staff(10) Budgeted hourly rate $45 $40 Budgeted time per tax return in hours 0.40 0.50 Actual results for February PA staff OS staff Actual hourly rate $48 $42 Actual time per tax return in hours 0.42 0.46 Number of actual tax returns completed 4,608 3,600 PA Staff : Direct Labor Rate Variance (DLRV) Formula: [Labor rate variance = (Actual hours worked × Actual rate) - (Actual hours worked × Standard rate)] ie DLRV = (4608*0.42*$48) - (4608*0.42*$45) = $5,806U Formula of labor efficiency variance (LEV) : [Labor efficiency variance = (Actual hours worked × Standard rate) - (Standard hours allowed × Standard rate)] ie LEV = (4608*0.42*$45) - (4608*0.40*$45) = $4,147 U OS Staff : Direct Labor Rate Variance (DLRV) Formula: [Labor rate variance = (Actual hours worked × Actual rate) - (Actual hours worked × Standard rate)] ie DLRV = (3600*0.46*$42) - (3600*0.46*$40) = $3,312 U Formula of labor efficiency variance (LEV) : [Labor efficiency variance = (Actual hours worked × Standard rate) - (Standard hours allowed × Standard rate)] ie LEV = (3600*0.46*$40) - (3600*0.50*$40) = $(5,760) = $5760F Comment on the efficiency of the PA and OS staff hired by The Tax Experts. DLRV & LEV of PS Staff are unfavorable DLRV of OS Staff is Unfavorable but LEV is Favorable Unfav DLRV can arise through the way labor is used. Skill workers with high hourly rates of pay may be given duties that require little skill and call for low hourly rates of pay. This will result in an unfavorable labor rate variance, since the actual hourly rate of pay will exceed the standard rate specified for the particular task. Since rate variances generally arise as a result of how labor is used, production supervisors bear responsibility for seeing that labor price variances are kept under control. Unfav LEV's possible casuses include poorly trained workers, poor process and poor supervision. Another important reason of an unfavorable labor efficiency variance may be insufficient demand for company's Services

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