Ackerman’s Garage uses standards to plan and control labor time and expense. The standard time for an engine tune-up is 3.5 hours, and the standard labor rate is $15 per hour. Last week, 24 tune-ups were completed. The labor efficiency variance was 6 hours unfavorable, and the labor rate variance totaled $81 favorable.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Ackerman’s Garage uses standards to plan and control labor time and expense. The standard time for an engine tune-up is 3.5 hours, and the standard labor rate is $15 per hour. Last week, 24 tune-ups were completed. The labor efficiency variance was 6 hours unfavorable, and the labor rate variance totaled $81 favorable.
Required:
- Calculate the actual direct labor hourly rate paid for tune-up work last week. (Round your answer to 1 decimal place.)
- Calculate the dollar amount of the labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
- Less skilled, lower paid workers took longer than standard to get the work done is the most likely explanation for these two variances
a. actual direct labor rate per hour
b. direct labor efficiency
c. less skilled workers took longer than standard time? True or False
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