Investigation of Variances Madison Company uses the following rule to determine whether direct labor efficiency variances ought to be investigated. A direct labor efficiency variance will be investigated anytime the amount exceeds the lesser of $12,000 or 10 percent of the standard labor cost. Reports for the past five weeks provided the following information: Week 1 2 3 4 Week 3: Week 4: LEV $ 14,000 F 15,600 U 12,000 F 10,000 U 11,500 U 5 Required: Using the rule provided, identify the cases that will be investigated. Week 1: Week 2: Week 5:1 Standard Labor Cost $160,000 175,000 160,000 170,000 110,000

Investigation of Variances Madison Company uses the following rule to determine whether direct labor efficiency variances ought to be investigated. A direct labor efficiency variance will be investigated anytime the amount exceeds the lesser of $12,000 or 10 percent of the standard labor cost. Reports for the past five weeks provided the following information: Week 1 2 3 4 Week 3: Week 4: LEV $ 14,000 F 15,600 U 12,000 F 10,000 U 11,500 U 5 Required: Using the rule provided, identify the cases that will be investigated. Week 1: Week 2: Week 5:1 Standard Labor Cost $160,000 175,000 160,000 170,000 110,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 11-4 Direct Labor and Variable Manufacturing Overhead Variances [LO11-2, LO11-3] Erie Company manufactures a small mp3 player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate mp3 player are as follows: StandardHours Standard Rateper Hour StandardCost 27 minutes $5.40 $2.43 During August, 9,410 hours of direct labor time were needed to make 19,400 units of the Jogging Mate. The direct labor cost totaled $49,873 for the month. Required: 1. According to the standards, what direct labor cost should have been incurred to make 19,400 units of the Jogging Mate? By how much does this differ from the cost that was incurred? (Round Standard labor time per unit and Standard direct labor rate to 2 decimal places.) 2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting…