Exercise 8-11 Working Backwards from Labor Variances [LO5] The Worldwide Credit

Question

Exercise 8-11 Working Backwards from Labor Variances [LO5]

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:

Determine the actual hourly rate paid to employees for opening batches last week. (Round your answer to 2 decimal places.)

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:

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Total Labor Spending Variance = Labor Rate Variance + Labor Efficiency Variance

658 = 330 + Labor Efficiency Variance

Labor Efficiency Variance = 658 - 330 = 328 (U)

Labor Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours Used for Actual Work)

328 = 4*(Actual Hours - 2.60*180)

Actual Hours = 328/4 + 2.60*180 = 550 hours

Part B:

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

330 = 550*(Actual Rate - 4)

Actual Hourly Rate = 330/550 + 4 = $4.60 per hour

Thanks.

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