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 rate per hour    Standard direct labour hours                                                                            given April output allowed, Labour class III                                         $26.00 1,000 Labour class II                                          $22.00 1,000 Labour class I                                           $12.00 1,000 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 rate per hour          Actual direct labour hours Labour class III                                        $30.00 1,100 Labour class II                                         $23.00 1,300 Labour class I                                          $14.00 750 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 rate per hour    Standard direct labour hours                                                                            given April output allowed,

Labour class III                                         $26.00 1,000
Labour class II                                          $22.00 1,000
Labour class I                                           $12.00 1,000
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 rate per hour          Actual direct labour hours
Labour class III                                        $30.00 1,100
Labour class II                                         $23.00 1,300
Labour class I                                          $14.00 750


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. 

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