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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information to complete Brief Exercises 10-25 and 10-26:

Tico Inc. produces plastic bottles. Each bottle has a standard labor requirement of 0.03 hour. During the month of April, 900,000 bottles were produced using 25,200 labor hours @ $15.00. The standard wage rate is $13.50 per hour.

10-26 Labor Rate and Efficiency Variances

Refer to the information above for Tico Inc. on the previous page

Required:

Calculate the labor rate and efficiency variances using the columnar and formula approaches.

To determine

Compute the value of labor rate and efficiency variances with the help of columnar and formula approach.

Explanation

Variance:

The amount obtained when actual cost is deducted from budgeted cost is known as variance. Variance is calculated to find whether the cost is over applied or under applied.

Use the following formula to calculate labor rate variance with the help of columnar approach:

Labor Rate Variance=((Standard Rate×Actual Hours)(Actual Rate×Actual Hours))

Substitute $13.50 for standard rate, 25,200 hours for actual hours and $15 for actual rate in the above formula.

Labor Rate Variance=(($13.50×25,200 Hours)($15.00×25,200 Hours))=$37,800(U)

Therefore, the labor rate variance by columnar approach is $37,800 (U).

Use the following formula to calculate labor efficiency variance with the help of columnar approach:

Labor Effeciency Variance=((Standard Rate×Actual Hours)(Standard Rate×Standard Hours1))

Substitute $13.50 for standard rate, 25,200 hours for actual hours, $15 for actual rate and 27,000 hours for standard hours in the above formula.

Labor Effeciency Variance=(($13.50×25,200 Hours)($13.50×27,000 Hours))=$24,300(F)

Therefore, the labor efficiency variance by columnar approach is $24,300 (F)

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