A CPA firm estimates that an audit will require the following work: Type of Audi

ID: 2505174 • Letter: A

Question

A CPA firm estimates that an audit will require the following work:

Type of Auditor Expected Hours Cost per Hour Standard Costs

Manager 10 $50 $ 500

Senior 20 40 800

Staff 40 30 1,200

Totals 70 $2,500

The actual hours and costs were:

Type of Auditor Actual Hours Actual Cost per Hour Actual Costs

Manager 9 $52 $ 468

Senior 22 38 836

Staff 44 30 1,320

Totals 75 $2,624

Required:

Calculate the direct labor, wage rate, and labor efficiency variances for each type of auditor and interpret.

Hi,

Please find the answer as follows:

Part A:

Direct Labor Variance =Actual Labor Cost - Standard Labor Cost = 2624 - 2500 = 124 (Unfavorable)

Part B:

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

Manager = 9*(52 - 50) = 18 (U)

Senior = 22*(38 - 40) = 44 (F)

Staff = 44*(30 - 30) = 0

Wage Rate Variance = 18 - 44 + 0 = 26 (Favorable)

Part C:

Efficiency Variance = Standard Rate*(Actual Hours - Standard Hours for Actual Production)

Manager = 50*(9 - 10) = 50 (F)

Senior = 40*(22 - 20) = 80 (U)

Staff = 30*(44 - 40) = 120 (U)

Efficiency Variance = -50 + 80 + 120 = 150 (Unfavorable)

Thanks.

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