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Advent Software uses standards to manage the cost of the programming staff. There are two programmer levels, Level 1 and Level 2. Level 1 programmers normally work on the easier projects. Level 1 and Level 2 programmers are paid $25 and $35 per hour, respectively. It has been determined from experience that Level 2 programmers can complete 50 lines of code per hour. If a Level 1 programmer is assigned to a Level 2 task, the programming work will be slower than the Level 2 time standard, but will be accomplished at a lower labor rate.
During a recent week, a Level 2 project was assigned to a Level 1 programmer. The programmer worked 40 hours and completed 1,400 lines of code.
- a. Determine the direct labor time variance for this worker.
- b. Determine the direct labor rate variance for this worker.
- c. Using the information in (a) and (b), is it more cost effective to use a Level 1 worker or a Level 2 worker on a Level 2 project?
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Chapter 23 Solutions
Financial and Managerial Accounting - Workingpapers
- BMX Ltd is a building business that provides a range of building services to the public. Recently they have been asked to quote for garage conversions and extensions to properties and have found that they are winning fewer garage conversion contracts than expected. BMX has a policy to price all jobs at budgeted total cost plus 50%. Overheads are currently absorbed on a labour hour basis. BMX thinks that a switch to activity based costing (ABC) to absorb overheads would reduce the cost associated to garage conversion and hence make them more competitive. The following data is provided, Overhead category Annual Overhead in Ksh Activity driver Total number of activities per year Supervisors 80,000 Site visits 495 Planners 60,000 Planning documents 245 Property related 230,000 Labour hours 35,000 Total 370,000 A typical Garage conversion costs Sh3,500 in materials and takes 300 labour hours to complete. A Garage conversion requires only one site visit by a supervisor…arrow_forwardSalley is developing material and labor standards for her company. She finds that it costs $0.55 per pound of material per widget. Each widget requires 6 pounds of material per widget. Salley is also working with the operations manager to determine what the standard labor cost is for a widget. Upon observation, Salley notes that it takes 3 hours in the assembly department and 1 hour in the finishing department to complete one widget. All employees are paid $10.50 per hour. A. What is the standard materials cost per unit for a widget? 8. What is the standard labor cost per unit for a widget?arrow_forwardYou are a management accountant for Time Treasures Company, whose company has recently signed an outsourcing agreement with Spotless. Inc., a janitorial service company. Spotless will provide all of Time Treasures janitorial services, including sweeping floors, hauling trash, washing windows, stocking restrooms, and performing minor repairs. Time Treasures will be billed at an hourly rate based on the type of service performed. The work of common laborers (sweeping, hauling trash) is to be billed at $8 per hour. More skilled (repairs) and more dangerous work (washing outside windows on the 23rd floor) are to be billed at $18 per hour. Supervisory time is to be billed at $20 per hour. Spotless will submit monthly invoices, which will show the number and types of hours for which Time Treasures is being charged. The outsourcing contract is simple and straightforward. A. What are some of the internal control problems you foresee as a result of our sourcing the janitorial service with this contract? B. Explain recommendations to control risk that would you suggest after reviewing the contract.arrow_forward
- Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for 66 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Prior to making a decision, the companys CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups1,160 each (The setups would be avoided, and total spending could be reduced by 1,160 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is 12,300 and could be totally avoided if the part were purchased. Engineering work: 470 hours, 45/hour. (Although the work decreases by 470 hours, the engineer assigned to the track assembly line also spends time on other products, and there would be no reduction in his salary.) 75 fewer material moves at 30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. 2. Now, using the special study data, repeat the analysis. 3. Discuss the qualitative factors that would affect the decision, including strategic implications. 4. After reviewing the special study, the controller made the following remark: This study ignores the additional activity demands that purchasing would cause. For example, although the demand for inspecting the part on the production floor decreases, we may need to inspect the incoming parts in the receiving area. Will we actually save any inspection costs? Is the controller right?arrow_forwardPlease I need help answering this problem O’Leary Corporation manufactures special purpose portable structures (huts, mobile offices, and so on) for use at construction sites. It only builds to order (each unit is built to customer specifications). O’Leary uses a normal job costing system. Direct labor at O’Leary is paid $30 per hour, but the employees are not paid if they are not working on jobs. Manufacturing overhead is assigned to jobs by a predetermined rate on the basis of direct labor-hours. The company incurred manufacturing overhead costs during two recent years (adjusted for price-level changes using current prices and wage rates) as follows. Year 1 Year 2 Direct labor-hours worked 69,600 56,600 Manufacturing overhead costs incurred Indirect labor $ 2,864,000 $ 2,264,000 Employee benefits 1,044,000 849,000 Supplies 696,000 566,000 Power…arrow_forwardJean Sharpe decides to gather additional data to identify the cause of overhead costs and figure out which products are most profitable. She notices that $30,000 of the overhead originated from the equipment used. She decides to incorporate machine-hours into the overhead allocation base to determine the effect on product profitability. Almond Dream requires 2 machine-hours per case, Krispy Krackle requires 7 hours per case, and Creamy Crunch requires 6 hours per case. Additionally, Jean notices that the $15,000 per month spent to rent 10,000 square feet of factory space accounts for almost 22 percent of the overhead. The assignment of square feet is 1,000 to Almond Dream, 4,000 to Krispy Krackle, and 5,000 to Creamy Crunch. Jean decides to incorporate this into the allocation base for the rental costs. Because labor-hours are still an important cost driver for overhead, Jean decides that she should use labor-hours to allocate the remaining $24,500. CBI still plans to produce 1,000…arrow_forward
- Jean Sharpe decides to gather additional data to identify the cause of overhead costs and figure out which products are most profitable. She notices that $30,000 of the overhead originated from the equipment used. She decides to incorporate machine-hours into the overhead allocation base to determine the effect on product profitability. Almond Dream requires 2 machine-hours per case, Krispy Krackle requires 7 hours per case, and Creamy Crunch requires 6 hours per case. Additionally, Jean notices that the $15,000 per month spent to rent 10,000 square feet of factory space accounts for almost 22 percent of the overhead. The assignment of square feet is 1,000 to Almond Dream, 4,000 to Krispy Krackle, and 5,000 to Creamy Crunch. Jean decides to incorporate this into the allocation base for the rental costs. Because labor-hours are still an important cost driver for overhead, Jean decides that she should use labor-hours to allocate the remaining $24,500. CBI still plans to produce 1,000…arrow_forwardJean Sharpe decides to gather additional data to identify the cause of overhead costs and figure out which products are most profitable. She notices that $30,000 of the overhead originated from the equipment used. She decides to incorporate machine-hours into the overhead allocation base to determine the effect on product profitability. Almond Dream requires 2 machine-hours per case, Krispy Krackle requires 7 hours per case, and Creamy Crunch requires 6 hours per case. Additionally, Jean notices that the $15,000 per month spent to rent 10,000 square feet of factory space accounts for almost 22 percent of the overhead. The assignment of square feet is 1,000 to Almond Dream, 4,000 to Krispy Krackle, and 5,000 to Creamy Crunch. Jean decides to incorporate this into the allocation base for the rental costs. Because labor-hours are still an important cost driver for overhead, Jean decides that she should use labor-hours to allocate the remaining $24,500. CBI still plans to produce 1,000…arrow_forwardSchneider Logistics Company has built a new warehouse in Columbus, Ohio, to facilitate the consoli-dation of freight shipments to customers in the region. George Schneider must determine how manyteams of dock workers he should hire to handle the cross-docking operations and the other warehouseactivities. Each team costs $5,000 a week in wages and overhead. Extra capacity can be subcontracted ata cost of $8,000 a team per week. Each team, whether in-house or subcontracted, can satisfy 200 laborhours of work a week. The labor hour requirements for the new facility are uncertain. Management hasestimated the following probabilities for the requirements: How many teams should Schneider hire?arrow_forward
- The cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system. For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows: Activity Cost Driver Budgeted Activity Budgeted Cost Sets up cost Number of set ups 40 P 20,000 Production monitoring Number of batches 20 40,000 Quality control Number of inspections 1,000 30,000 Total overhead costs…arrow_forwardThe cost accountant of L. Rosales, Inc. is considering to use the ABC system in determining the cost of its products. At present, the company uses the traditional costing systems wherein factory overhead costs are allocated based on direct labor hours. This cost accountant believes that the present system may be providing misleading cost information, hence, the plan to change to ABC system. For the coming period, the company is planning to use 5,000 direct labor hours, and its total budgeted factory overhead amounts to P 90,000, broken down as follows: Activity Cost Driver Budgeted Activity Budgeted Cost Sets up cost Number of set ups 40 P 20,000 Production monitoring Number of batches 20 40,000 Quality control Number of inspections 1,000 30,000 Total overhead…arrow_forwardSanchez Trucking has been experiencing delays at its warehouse operations. Management hired a consultant to find out why service deliveries to local businesses have taken longer than they should. The consultant narrowed down the problem to the number of work crews loading and unloading trucks. Each crew consists of 7 employees who work as a team on a variety of tasks; each employee works a full 40 hours a week. However, costs are also a concern. The consultant advised management that they could supplement work crews with short-term employees, at a higher cost, to cover unexpected needs on a weekly basis. Each work crew permanently hired by Sanchez costs $3,500 per week in wages and benefits, while a crew of short-term employees costs $6,000 per week. Complicating the decision is the fact that the weekly hourly requirements for work crews is uncertain because of the volatility in the number of deliveries to be made. Deliberating with management, the consultant arrived at the following…arrow_forward
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