eBook Calculator Standards for Nonmanufacturing Expenses CodeHead Software Inc.
ID: 2560103 • Letter: E
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Standards for Nonmanufacturing Expenses
CodeHead Software Inc. does software development. One important activity in software development is writing software code. The manager of the WordPro Development Team determined that the average software programmer could write 25 lines of code in an hour. The plan for the first week in May called for 4,650 lines of code to be written on the WordPro product. The WordPro Team has five programmers. Each programmer is hired from an employment firm that requires temporary employees to be hired for a minimum of a 40-hour week. Programmers are paid $32.00 per hour. The manager offered a bonus if the team could generate more lines for the week, without overtime. Due to a project emergency, the programmers wrote more code in the first week of May than planned. The actual amount of code written in the first week of May was 5,650 lines, without overtime. As a result, the bonus caused the average programmer's hourly rate to increase to $40.00 per hour during the first week in May.
Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. If an amount is zero, enter "0" and choose "Not applicable" from the dropdown.
Required:
1. If the team generated 4,650 lines of code according to the original plan, what would have been the labor time variance?
$ Unfavorable
2. What was the actual labor time variance as a result of generating 5,650 lines of code?
$ Favorable
3. What was the labor rate variance as a result of the bonus?
$ Unfavorable
4. Are there any performance-related issues that the labor time and rate variances fail to consider?
The labor rate and time variances fail to consider the number of errors in the code from programmer fatigue. A program that has many errors will require significant time for debugging at a later date. Thus, managers should consider the efficiency of doing the work and also the quality of the work.
5. The manager is trying to determine if a better decision would have been to hire a temporary programmer to meet the higher programming demand in the first week of May, rather than paying out the bonus. If another employee was hired from the employment firm, what would have been the labor time variance in the first week?
$ Unfavorable
6. Which decision is better, paying the bonus or hiring another programmer?
Hiring another employee
Explanation / Answer
Standard quantity of output per hour per programmer 25 lines Standard rate per hour $32 Budgeted ouput for first week in May 4650 lines Actual output 5650 lines Actual rate per hour $40 Standard hours for 4650 lines(4650/25) 186 Actual hours=5*40 200 1 Labor time variance=Standard rate*(Actual hour-Standard hour) Labor time variance($32*(200-186)) $448 Unfavourable 2 Standard time for 5650 lines(5650/25) 226 hours Actual time 200 hours Labor time variance($32*(200-226) ($832) Favourable 3 Labor rate variance=Actual hour*(Actual rate-Standard rate) Labor rate variance=200*(40-32) $1,600 Unavourable 4 Performance related issue: Quality of work 5 If another employee was hired Actual labor time=6*40 240 Actual labor rate $32 Labor time variance=Standard rate*(Actual hour -Standard hour) Labor time variance=$32*(240-226) $448 Unfavourable 6 Which decision is better? 7680 Cost of hiring another programmer(40*6*$32) $7,680 8000 Cost of paying bonus(40*5*$40) $8,000 Highering another employee is less costly, hence it is better
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