   Chapter 13, Problem 25CDQ

Chapter
Section
Textbook Problem

A new assistant controller recently said: "All the assembly workers in this plant are covered by union contracts, so there should be no labor variances." Was the controller's remark correct? Discuss.

To determine

Concept Introduction:

Direct labor variances:

Direct labor variances refer to the difference between the standard direct labor cost and actual direct labor cost incurred. Direct labor cost variances are categorized into following categories:

1. Direct labor Rate variance: this variance shows the difference of standard rate and actual rate of labor. The formula to calculate this variance is as follows:
2.   Direct labor rate variance = (Actual rate – Standard rate) ×Actual hours

3. Direct labor efficiency variance: this variance shows the difference of standard usage and actual usage of labor. The formula to calculate this variance is as follows:
4.   Direct labor efficiency variance = (Actual hours – Standard hours)×Standard rate

5. Direct labor cost variance: this variance shows the difference of standard cost and actual cost of labor. The formula to calculate this variance is as follows:
6.   Direct labor cost variance = Direct labor rate variance + Direct labor efficiency variance

Or

Direct Labor cost variance = Actual Labor cost − Standard Labor Cost

To Indicate:

If the given remark is correct

Explanation

Direct labor variances refer to the difference between the standard direct labor cost and actual direct labor cost incurred. Direct labor cost variances are categorized into following categories:

1. Direct labor Rate variance: this variance shows the difference of standard rate and actual rate of labor. The formula to calculate this variance is as follows:
2.   Direct labor rate variance = (Actual rate – Standard rate) ×Actual hours

3. Direct labor efficiency variance: this variance shows the difference of standard usage and actual usage of labor

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Define audit risk.

Accounting Information Systems

Is a physical inventory necessary under the perpetual system? Why or why not?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

How can report writers decide what type of graphic to use in a report?

Essentials of Business Communication (MindTap Course List)

Until now, we have assumed that XOMs dividend will grow at a long-run constant rate of 5%. To gauge whether thi...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List) 