The accountant for Barry Ltd compares each month’s actual results with a monthly plan. The standarddirect labour rates and the standard hours allowed, given the actual output in April, are shown in thefollowing schedule: standard direct labour per hourstandard direct labour hours allowed given april outputlabour class III$261000labour class II$221000labour class I$121000A new union contract negotiated in March resulted in actual wage rates that differed from thestandard rates. The actual direct labour hours worked and the actual direct labour rates per hour forApril were as follows. actual direct labour per houractual direct labour hourlabour class 3$28110labour class 2$23130labour class 1$14750 Required:a) Calculate the following variances for April, indicating whether each is favourable or unfavourable:i direct labour rate variance for each labour class. ii direct labour efficiency variance for each labour class. b) Discuss two advantages and two disadvantages of a standard costing system in which the standarddirect labour rates per hour are not changed during the year to reflect events such as a new labourcontract. (maximum 150 words)

a) Labor class III: Standard labour rate = 26 Actual labour hours worked = 110 Actual rate = 28…

Answered: The accountant for Barry Ltd compares…

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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The accountant for Barry Ltd compares each month’s actual results with a monthly plan. The standard
direct labour rates and the standard hours allowed, given the actual output in April, are shown in the
following schedule:

	standard direct labour per hour	standard direct labour hours allowed given april output
labour class III	$26	1000
labour class II	$22	1000
labour class I	$12	1000

A new union contract negotiated in March resulted in actual wage rates that differed from the
standard rates. The actual direct labour hours worked and the actual direct labour rates per hour for
April were as follows.

	actual direct labour per hour	actual direct labour hour
labour class 3	$28	110
labour class 2	$23	130
labour class 1	$14	750

Required:
a) Calculate the following variances for April, indicating whether each is favourable or unfavourable:
i direct labour rate variance for each labour class.
ii direct labour efficiency variance for each labour class.
b) Discuss two advantages and two disadvantages of a standard costing system in which the standard
direct labour rates per hour are not changed during the year to reflect events such as a new labour
contract. (maximum 150 words)

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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