Chapter 23, Problem 23.5BPR

1.

To determine

Direct labor variances:

The difference between the actual labor cost in the production and the standard labor cost for actual production is known as direct labor cost variance. The direct labor variance can be classified as follows:

• • Labor rate variance.
  • Labor time variance.

To determine: The direct labor time variance, if the department had typed 81,900 lines according to the original plan.

Explanation of Solution

Determine the direct labor time variance.

$\begin{array}{c}\begin{array}{l}\text{Direct labor }\\ \text{time variance}\end{array}\}\text{ = }\left[\left(\begin{array}{l}\text{Actual direct labor hours (2)}-\\ \text{Standard direct labor hours (3)}\end{array}\right)\text{× Standard rate per hour}\right]\\ =\left[\left(120\text{hours}-117\text{ hours}\right)\text{× \$23 per hour}\right]\\ \text{=}\left[\text{3 hours× \$23}\text{per hour}\right]\\ \text{=\$69}\end{array}$ (1)

$\begin{array}{c}\text{Actual labor hours=}\left(\begin{array}{l}\text{Number of employees}\times \text{Number of labor}\\ \text{ hours per week}\end{array}\right)\\ =3\text{employees}\times 40\text{hours}\\ \text{=120}\text{hours}\end{array}$ (2)

$\begin{array}{c}\left(\begin{array}{l}\text{Standard direct }\\ \text{labor hours}\end{array}\right)=\left(\frac{\text{Number of lines typed}}{\text{Standard labor time per hour}}\right)\\ =\frac{81,900\text{lines}}{700\text{lines per hour}}\\ =117\text{hours}\end{array}$ (3)

Conclusion

The direct labor time variance is $69 and it is an unfavorable variance, since the actual direct labor hour is more than the standard direct labor hour.

2.

To determine

The actual labor time variance, as a result of typing 88,900 lines.

Explanation of Solution

Determine the direct labor time variance.

$\begin{array}{c}\begin{array}{l}\text{Actual labor }\\ \text{time variance}\end{array}\}\text{ = }\left[\left(\begin{array}{l}\text{Actual direct labor hours (2)}-\\ \text{Standard direct labor hours (5)}\end{array}\right)\text{× Standard rate per hour}\right]\\ =\left[\left(120\text{hours}-127\text{ hours}\right)\text{× \$23 per hour}\right]\\ \text{=}\left[\left(7\right)\text{ hours× \$23}\text{per hour}\right]\\ \text{=\$}\left(161\right)\end{array}$ (4)

$\begin{array}{c}\left(\begin{array}{l}\text{Standard direct }\\ \text{labor hours}\text{for }\\ \text{actual production}\end{array}\right)=\left(\frac{\text{Number of lines typed}}{\text{Standard labor time per hour}}\right)\\ =\frac{88,900\text{lines}}{700\text{lines per hour}}\\ =127\text{hours}\end{array}$ (5)

Conclusion

The direct labor time variance is $(161) and it is a favorable variance, since the actual direct labor hour is lesser than the standard direct labor hour.

3.

To determine

The direct labor rate variance as a result of the bonus.

Explanation of Solution

Determine the direct labor rate variance.

$\begin{array}{c}\text{Direct labor rate variance = }\left[\left(\begin{array}{l}\text{Actual rate per hour}-\\ \text{Standard rate per hour}\end{array}\right)\text{× Actual hours (2)}\right]\\ =\left[\left(\text{\$30}-\text{\$23}\right)\text{×120 hours}\right]\\ \text{=\$7×120 hours}\\ \text{=\$840}\end{array}$ (6)

Conclusion

The direct labor rate variance is $840 and it is an unfavorable variance, since the actual rate per hour is more than the standard rate per hour.

4.

To determine

The labor time variance in the first week if a new employee had been hired from the employment firm.

Explanation of Solution

Determine the direct labor time variance.

$\begin{array}{c}\begin{array}{l}\text{Actual labor }\\ \text{time variance}\end{array}\}\text{ = }\left[\left(\begin{array}{l}\text{Actual direct labor hours (8)}-\\ \text{Standard direct labor hours (5)}\end{array}\right)\text{× Standard rate per hour}\right]\\ =\left[\left(160\text{hours}-127\text{ hours}\right)\text{× \$23 per hour}\right]\\ \text{=}\left[\text{33 hours× \$23}\text{per hour}\right]\\ \text{=\$759}\end{array}$ (7)

$\begin{array}{c}\text{Actual labor hours=}\left(\begin{array}{l}\text{Number of employees}\times \text{Number of labor}\\ \text{ hours per week}\end{array}\right)\\ =4\text{employees}\times 40\text{hours}\\ \text{=160}\text{hours}\end{array}$ (8)

Conclusion

The direct labor time variance is $759 and it is an unfavorable variance, since the actual direct labor hour is more than the standard direct labor hour.

5.

To determine

To identify: The better decision between paying the bonus, and hiring another transcriptionist.

Answer to Problem 23.5BPR

Paying the bonus is the better decision when compared to hiring another transcriptionist as paying the bonus is less costly.

Explanation of Solution

Determine the total direct labor cost time variance.

$\begin{array}{c}\text{Total direct labor cost variance = }\left(\begin{array}{l}\text{Direct labor rate variance (4) +}\\ \text{Direct labor time variance (6)}\end{array}\right)\\ \text{= \$(161)+\$840}\\ \text{=\$}679\end{array}$ (9)

The direct labor cost variance for paying the bonus is $679 (9) and it is an unfavorable variance, since the direct labor rate variance is more than the direct labor time variance. The labor cost variance in hiring another transcript would have been $759 (7) which is unfavorable, which is more than the cost of paying the bonus.

Conclusion

Hence, the net benefit of paying the bonus when compared to hiring another transcriptionist is $80 $\$679\left(9\right)-\$759\left(7\right)$.

6.

To determine

To explain: The performance-related issues that the labor time, and rate variances fail to consider, if any.

Explanation of Solution

The performance-related issues that the labor time and rate variances fail to consider are as follows:

• The number of errors in the report from the fatigue of the typist is failed to be considered by the labor time and rate variances. If a report has many errors, then it will require more time for correcting such errors at a later date.
• In addition to this, errors in the report may lead to draw incorrect conclusions by the doctors from the test analyses.

• Thus, the manager should consider the quality of the work also beside considering the efficiency of doing the work.