Outdoors, Inc., manufactures steel hitches for camping trailers. The company\'s

Question

Outdoors, Inc., manufactures steel hitches for camping trailers. The company's direct labor rates have been set by the terms of the current labor contract. Direct labor rate standards have been assigned for each job classification. In May 20xx, a young apprentiace was being trained during regular working hours to become a machine operator on one of the turret lathes. A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in May. The standard time for the same work outout is 31 hours. The apprentice earned $6.25 per hour in May. The standard direct labor rate for machine operators working on turret lathes is $10 per hour.

a. From the data provided, determine the direct labor efficiency variance and the direct labor rate varience that resulted from the temporary substitution of the apprentice for the regular machine operator. ( Note that, according to the labor contract, the apprentice is not entitled tot he same rate as a regular machine operator during the training period.)

b. Did the company benefit finacially from the situation? Why or why not? (Show calculations)

Explanation / Answer

Actual Hours= 48

Standard Hours= 31

Standard rate= $10

Actual rate=$6.5

Actual cost= $312

Direct Labor Rate Variance: Actual Cost-Standard Cost of Actual Hours

= $312-(48*10)= $168 U

Direct Labor Effciency Variance: Standard Rate(Actual Hours-Standard Hours)

10* (48-31)=170 U

Note  according to the labor contract, the apprentice is not entitled tot he same rate as a regular machine operator during the training period.So we can assume that actual rate is equal to standard rate as the standard rate of operator is not given to apprentice than the variance will be

Direct Labor Rate Variance: Actual Cost-Standard Cost of Actual Hours

= $312-(48*6.5)= 0 U

Direct Labor Effciency Variance: Standard Rate(Actual Hours-Standard Hours)

6.5* (48-31)= $110.5

b) Apprentice total cost=48*$6.5= $312

If a regular operator have done this than it would be 31hours*$10= $310

So it benefit financially by $2

Direct Labor Rate Variance: Actual Cost-Standard Cost of Actual Hours

= $312-(48*10)= $168 U

Direct Labor Effciency Variance: Standard Rate(Actual Hours-Standard Hours)

10* (48-31)=170 U

Note  according to the labor contract, the apprentice is not entitled tot he same rate as a regular machine operator during the training period.So we can assume that actual rate is equal to standard rate as the standard rate of operator is not given to apprentice than the variance will be

Direct Labor Rate Variance: Actual Cost-Standard Cost of Actual Hours

= $312-(48*6.5)= 0 U

Direct Labor Effciency Variance: Standard Rate(Actual Hours-Standard Hours)

6.5* (48-31)= $110.5

b) Apprentice total cost=48*$6.5= $312

If a regular operator have done this than it would be 31hours*$10= $310

So it benefit financially by $2

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