Chapter 16, Problem 46P

1.

To determine

Determine the direct labor rate and efficiency variance for assembly departments.

Explanation of Solution

Compute the labor rate variance for the prior year is as follows:

$\begin{array}{c}\text{Labor rate variance}\}\text{ = }\left(\begin{array}{l}\text{Actual labor rate}\\ -\text{Standard labor rate}\end{array}\right)\\ \text{= }\$15,000,000-\$14,000,000\\ \text{= }\$100,000\end{array}$

Compute the efficiency variance for the prior year:

$\begin{array}{c}\text{Efficiency variance}\}\text{ = }\left(\begin{array}{l}\text{Standard labor rate}\\ -\text{Standard labor efficiency}\end{array}\right)\\ \text{= }\$14,000,000-\$13,440,000\\ \text{= }\$560,000\end{array}$

Compute the labor rate variance for the current year:

$\begin{array}{c}\text{Labor rate variance}\}\text{ = }\left(\begin{array}{l}\text{Actual labor rate}\\ -\text{Standard labor rate}\end{array}\right)\\ \text{= }\$14,440,000-\$14,000,000\\ \text{= }\$400,000\end{array}$

Compute the efficiency variance for the current year:

$\begin{array}{c}\text{Efficiency variance}\}\text{ = }\left(\begin{array}{l}\text{Standard labor rate}\\ -\text{Standard labor efficiency}\end{array}\right)\\ \text{= }\$14,700,000-\$14,000,000\\ \text{= }\$700,000\end{array}$

Working notes:

Determine the actual and standard labor rate for both the periods:

Particulars	Prior year	(W.N)	Current year	(W.N)
Total actual direct labor hours	$500,000	$25 × 20,000	$400,000	$20 × 20,000
Total standard direct labor hours	$480,000	$24 × 20,000	$420,000	$21 × 20,000
Direct labor rate	$15,000,000	$30 × 500,000	$14,400,000	$36 × 400,000
	$14,000,000	$28 × 500,000	$14,000,000	$35 × 400,000
Standard rate	$13,440,000	$28 × 480,000	$14,700,000	$35 × 420,000

Determine the direct labor rate and efficiency variance for testing departments

Compute the labor rate variance for the prior year:

$\begin{array}{c}\text{Labor rate variance}\}\text{ = }\left(\begin{array}{l}\text{Standard labor rate}\\ -\text{Actual labor rate}\end{array}\right)\\ \text{= }\$5,040,000-\$4,800,000\\ \text{= }\$240,000\text{ (F)}\end{array}$

Compute the efficiency variance for the prior year:

$\begin{array}{c}\text{Efficiency variance}\}\text{ = }\left(\begin{array}{l}\text{Standard labor efficiency}\\ -\text{Standard labor rate}\end{array}\right)\\ \text{= }\$5,880,000-\$5,040,000\\ \text{= }\$840,000\text{ (F)}\end{array}$

Compute the labor rate variance for the current year:

$\begin{array}{c}\text{Labor rate variance}\}\text{ = }\left(\begin{array}{l}\text{Standard labor rate}\\ -\text{Actual labor rate}\end{array}\right)\\ \text{= }\$5,000,000-\$4,800,000\\ \text{= }\$200,000\text{ (F)}\end{array}$

Compute the efficiency variance for the current year:

$\begin{array}{c}\text{Efficiency variance}\}\text{ = }\left(\begin{array}{l}\text{Standard labor efficiency}\\ -\text{Standard labor rate}\end{array}\right)\\ \text{= }\$5,500,000-\$5,000,000\\ \text{= }\$500,000\text{ (F)}\end{array}$

Working notes:

Determine the actual and standard labor rate of testing department for both the periods:

Particulars	Prior year	(W.N)	Current year	(W.N)
Total actual direct labor hours	$240,000	$12 × 20,000	$200,000	$10 × 20,000
Total standard direct labor hours	$280,000	$14 × 20,000	$220,000	$11 × 20,000
Direct labor rate	$4,800,000	$20 × 240,000	$4,800,000	$24 × 200,000
	$5,040,000	$21 × 240,000	$5,000,000	$25 × 200,000
Standard rate	$5,880,000	$21× 280,000	$5,500,000	$25 × 220,000

2.

To determine

Determine the partial operational productivity for prior year and current year for assembly department.

Explanation of Solution

Compute the partial operational productivity for prior year:

$\begin{array}{c}\begin{array}{l}\text{Direct Labor }\\ \text{operational productivity}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\text{Total actual direct labor hours}}\right)\\ \text{= }\frac{20,000}{\$500,000}\\ \text{= }\$0.04\end{array}$

Compute the partial operational productivity for current year:

$\begin{array}{c}\begin{array}{l}\text{Direct Labor }\\ \text{operational productivity}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\begin{array}{l}\text{Total actual direct labor hours }\\ \text{(Current year)}\end{array}}\right)\\ \text{= }\frac{20,000}{\$400,000}\\ \text{= }\$0.05\end{array}$

Compute the partial operational productivity of for testing department for prior year:

$\begin{array}{c}\begin{array}{l}\text{Direct Labor }\\ \text{operational productivity}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\text{Total actual direct labor hours}}\right)\\ \text{= }\frac{20,000}{\$240,000}\\ \text{= }\$0.0833\end{array}$

Compute the partial operational productivity of testing department for current year:

$\begin{array}{c}\begin{array}{l}\text{Direct Labor }\\ \text{operational productivity}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\begin{array}{l}\text{Total actual direct labor hours }\\ \text{(Current year)}\end{array}}\right)\\ \text{= }\frac{20,000}{\$200,000}\\ \text{= }\$0.1\end{array}$

3.

To determine

Determine the partial financial productivity for prior year and current year for assembly department.

Explanation of Solution

Compute the partial financial productivity for prior year:

$\begin{array}{c}\begin{array}{l}\text{Partial financial}\\ \text{ productivity}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\text{Total direct labor rate }}\right)\\ \text{= }\frac{20,000}{\$15,000,000}\\ \text{= }\$0.0013\end{array}$

Compute the partial financial productivity for current year:

$\begin{array}{c}\begin{array}{l}\text{Partial financial}\\ \text{ productivity current year}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\text{Total standard labor rate }}\right)\\ \text{= }\frac{20,000}{\$14,000,000}\\ \text{= }\$0.0014\end{array}$

Compute the partial financial productivity of testing department for prior year:

$\begin{array}{c}\begin{array}{l}\text{Direct Labor }\\ \text{operational }\\ \text{productivity (prior year)}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\text{Total actual direct labor hours}}\right)\\ \text{= }\frac{20,000}{\$4,800,000}\\ \text{= }\$0.0042\end{array}$

Compute the partial operational productivity of testing department for current year:

$\begin{array}{c}\begin{array}{l}\text{Direct Labor }\\ \text{operational }\\ \text{productivity (current year)}\end{array}\}\text{ =}\left(\frac{\text{ Tested unit of instruments}}{\text{Total actual direct labor hours}}\right)\\ \text{= }\frac{20,000}{\$4,800,000}\\ \text{= }\$0.0042\end{array}$

4.

To determine

Compare and comment results based on two requirements:

Explanation of Solution

Operational partial productivity
Particulars	Prior  Year	Current year	Changes
Assembly	0.04	0.05	0.01 F
Testing	0.0833	0.1	0.0167  F
Financial partial productivity
Particulars	Prior  Year	Current year	Changes
Assembly	0.0013	0.0014	0.0001 F
Testing	0.0042	0.0042	0

The operational partial productivity for both the departments is increased in the current year compared to previous year. The financial partial productivity is also increased compared to testing department.

5.

To determine

Explain how the productivity measure differ from variance analyze.

Explanation of Solution

The standards in costing system is determined independently and with changes in operating factors. The standards for operation of the year will change due to changes in technology, materials, design, and production workers.

Under productivity measures, the productivity of the previous year is determined without adjusting changes occurred during the current year.