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 allowed, given April output 1,000 Labour class III Labour class II Labour class I $26.00 $22.00 1,000 $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 hours 1,100 Actual direct labour rate per hour Labour class III Labour class II Labour class I $28.00 $23.00 1,300 $14.00 750
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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
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