Custom Clubs produces handmade golf clubs. The process is labor intensive. The s

Question

Custom Clubs produces handmade golf clubs. The process is labor intensive. The speed at which a club can be built depends on the skill level of the individual worker. Management has established a standard of 2 labor hours per club. The standard wage rate is $12 per hour. During a recent month, 2,500 custom clubs were produced. Management was pleased that only 4,900 labor hours were worked; however, total wages amounted to $63,700.

Compute the total variance for labor, and determine how much is related to rate and efficiency components.

Labor variances: Actual Labor Cost Actual hours of labor                      - Actual rate $                   - Actual cost of direct labor $                   - Standard Labor Cost Output - number of clubs                      - Standard hours per club $                   - Standard hours to achieve output                      - Standard rate per hour $                   - Standard cost of direct labor $                   - Total labor variance (standard cost v. actual cost) $                   - Labor rate variance: Standard rate $                   - Actual rate                      - $                   - Actual hours                      - Unfavorable labor rate variance $                   - Labor efficiency variance: Standard hours                      - Actual hours                      -                      - Standard rate $                   - Favorable labor efficiency variance $                   - Custom Clubs produces handmade golf clubs. The process is labor intensive. The speed at which a club can be built depends on the skill level of the individual worker. Management has established a standard of 2 labor hours per club. The standard wage rate is $12 per hour. During a recent month, 2,500 custom clubs were produced. Management was pleased that only 4,900 labor hours were worked; however, total wages amounted to $63,700.

Compute the total variance for labor, and determine how much is related to rate and efficiency components.

Labor variances: Actual Labor Cost Actual hours of labor                      - Actual rate $                   - Actual cost of direct labor $                   - Standard Labor Cost Output - number of clubs                      - Standard hours per club $                   - Standard hours to achieve output                      - Standard rate per hour $                   - Standard cost of direct labor $                   - Total labor variance (standard cost v. actual cost) $                   - Labor rate variance: Standard rate $                   - Actual rate                      - $                   - Actual hours                      - Unfavorable labor rate variance $                   - Labor efficiency variance: Standard hours                      - Actual hours                      -                      - Standard rate $                   - Favorable labor efficiency variance $                   -

Explanation / Answer

club hrs. R hrs.*R                                                       1.00                          2.00         12.00            24.00                                               2,500.00                  5,000.00         12.00    60,000.00 Std                                               2,500.00                  4,900.00         13.00    63,700.00 Actual      3,700.00 U Direct Labor Rate Variance AH(AR-SR) 4900(13-12)                  4,900.00 U Direct Labor Effciency Variance SR(AH-SH) 12(4900-5000)               (1,200.00) F Total Labor variance (AH*AR-SH*SR) 4900*13-5000*12                  3,700.00 U

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