Sarmento Tax Services prepares tax returns for senior citizens. The standard in

Question

Sarmento Tax Services prepares tax returns for senior citizens. The standard in terms of (direct labor) time spent on each return is 4 hours. The direct labor standard wage rate at the firm is $15.00 per hour. Last month, 1,980 direct labor hours were used to prepare 500 tax returns. Total wages totaled $30,690. Requirements 1 What is the actual (direct labor) wage rate per hour paid last month? 2.What is the direct labor rate variance? 3. What is the direct labor efficiency variance? 4. How might the direct labor rate variance for the firm last month be causing the direct labor efficiency variance?

Explanation / Answer

Actual wage rate per hour=

Total wages - 30,690

Hours -1980

30,690/1980=15.5

Labor rate variance =actual cost-standard cost of the actual hours

Actual hours =1980*15.5=30,690

Standard hours=1980*15.00=29,700

30,690-29,700=990 adverse

Direct labour efficiency SR*(AH-SH)

15.00*(1980-2000)

300 favourable

Standard time =500*4=2000

The variance is favourable because labor work 20 hours less then what was allowed by standards.

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