Chapter 10, Problem 38P

The following data pertain to Colgate-Palmolive’s liquid filling line during the first 10 months of a particular year. The standard ratio of direct-labor hours to machine hours is 4:1. The standard direct-labor rate is $15.08.

*Source of data: Alan S. Levitan and Sidney J. Baxendale, “Analyzing the Labor Efficiency Variance to Signal Process Engineering Problems,” Journal of Cost Management 6, no. 2, p. 70.

Required:

1. 1. Show how the following amounts were calculated for the month of January:
   1. a.      Standard direct-labor hours.
   2. b.      Direct-labor efficiency variance.
2. 2. Calculate the following amounts.
   1. a.      The standard direct-labor cost for each of the 10 months.
   2. b.      For each month, 20 percent of the standard direct-labor cost.
3. 3. Suppose management investigates all variances in excess of 20 percent of standard cost. Which variances will be investigated?
4. 4. Suppose the standard deviation for the direct-labor efficiency variance is $5,000. Draw a statistical control chart, and plot the variance data.
5. 5. Using the chart developed in requirement (4), which variances will be investigated?
6. 6. The variances for March, April, and June are much larger than the others. Suggest at least one reason for this.