During a recent lengthy strike at Morell Manufacturing Company, management repla
ID: 2424074 • Letter: D
Question
During a recent lengthy strike at Morell Manufacturing Company, management replaced striking assembly line workers with office workers. The assembly line workers had been paid $18 per hour while the office workers are only paid $10 per hour. What is the most likely effect on the labor variances in the first month of this strike?( please provide the necessary brief explanation to justify)
Labor Rate Variance Labor Efficiency Variance
A) Unfavorable No effect
B) No effect Unfavorable
C) Unfavorable Favorable
D) Favorable Unfavorable
A.
Option A
B.
Option B
C.
Option C
D.
Option D
A.
Option A
Explanation / Answer
Answer is Option D
Labor Rate Variance - Favourable
As the labor rate variance measures the difference between the actual and expected cost of labor. It is calculated as the difference between the actual labor rate paid and the standard rate, multiplied by the number of actual hours worked. The formula is:
(Actual rate - Standard rate) x Actual hours worked = Labor rate variance
Due to Strike we have less expenses as planned so we have a favourable impact.
Labor Efficiency Variance:- The labor efficiency variance measures the ability to utilize labor in accordance with expectations. The variance is useful for spotlighting those areas in the production process that are using more labor hours than anticipated. This variance is calculated as the difference between the actual labor hours used to produce an item and the standard amount that should have been used, multiplied by the standard labor rate.
But due to strike we were not able to utiize the labor per expectations which will have unfavourable impact.
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