The Worldwide Credit Card, Inc., uses standards to control the labor time involv

Question

The Worldwide Credit Card, Inc., uses standards to control the labor time involved in opening mail from card holders and recording the enclosed remittances. Incoming mail is gathered into batches, and a standard time is set for opening and recording each batch. The labor standards relating to one batch are as follows: The record showing the time spent last week in opening batches of mail has been misplaced. However, the batch supervisor recalls that 180 batches were received and opened during the week, and the controller recalls the following variance data relating to these batches: Required: 1. Determine the number of actual labor-hours spent opening batches during the week. 2. Determine the actual hourly rate paid to employees for opening batches last week.

Explanation / Answer

1

Calculation of Actual Labor Hours :

Given:

Total Labor Spending variance

$ 384 U

Labor rate Variance

$ 376 U

Labor efficiency Variance (384-376) =

$ 8 U

(Total Labor Spending variance - Labor Rate Variance)

Formula :

Labor efficiency Variance = (Actual Hours - Standard Hours ) * Standard Rate

Labor efficiency Variance = $8 U

Standard Hours = 180 Batches * 2.60 = 468 Hours

Standard Rate = $4

Hence,

8 = (Actual Hours - 468 ) * 4

Actual Hours = (8/4) + 468 =

470 Hours

2

Calculation of Actual Hourly rate:

Formula :

Labor rate Variance = (Actual Rate - Standard Rate ) * Actual Hours

Labor rate Variance = 376 U

Standard Rate = $4

Actual Hours = 470

Hence,

376 = (Actual Rate - 4 ) * 470

Actual Rate = (376 / 470) + 4 =

$4.80 Per Hour

1

Calculation of Actual Labor Hours :

Given:

Total Labor Spending variance

$ 384 U

Labor rate Variance

$ 376 U

Labor efficiency Variance (384-376) =

$ 8 U

(Total Labor Spending variance - Labor Rate Variance)

Formula :

Labor efficiency Variance = (Actual Hours - Standard Hours ) * Standard Rate

Labor efficiency Variance = $8 U

Standard Hours = 180 Batches * 2.60 = 468 Hours

Standard Rate = $4

Hence,

8 = (Actual Hours - 468 ) * 4

Actual Hours = (8/4) + 468 =

470 Hours

2

Calculation of Actual Hourly rate:

Formula :

Labor rate Variance = (Actual Rate - Standard Rate ) * Actual Hours

Labor rate Variance = 376 U

Standard Rate = $4

Actual Hours = 470

Hence,

376 = (Actual Rate - 4 ) * 470

Actual Rate = (376 / 470) + 4 =

$4.80 Per Hour

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