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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Direct labor standards for a service company

 One of the operations in the United States Postal Service is a mechanical mail sorting operation. In this operation, letter mail is sorted at a rate of 1.5 letters per second. The letter is mechanically sorted from a three-digit code input by an operator sitting at a keyboard. The manager of the mechanical sorting operation wants to determine the number of temporary employees to hire for December. The manager estimates that there will be an additional 24,192,000 pieces of mail in December, due to the upcoming holiday season.

 Assume that the sorting operators are temporary employees. The union contract requires that temporary employees be hired for one month at a time. Each temporary employee is hired to work 160 hours in the month.

 a. How many temporary employees should the manager hire for December?

 b. If each temporary employee earns a standard $16.40 per hour, what would be the labor time variance if the actual number of additional letters sorted in December was 23,895,000?

(a)

To determine

Standard cost:

In the accounting records, the term standard cost refers to the practice of replacement of an expected cost for an actual cost. Then the difference between the expected costs and actual costs showing the variance are also recorded periodically. A standard costs is also known as target cost or predetermined cost.

Direct labor time variance:

Direct labor time variance is the difference between actual direct labor hours, and the standard direct labor hours multiplied by standard rate per hour. When the actual direct labor hours exceeds the standard direct labor hours, the variance is unfavorable. Similarly, when the actual direct labor hour is less than the standard direct labor hour, the variance is favorable.

To determine: The number of employees that the manger should hire for December.

Explanation

The number of employees that the manger should hire for December is determined as follows.

Determine the standard sorts per hour:

Standard sorts per hour(per employee)}[Standard sorts per minute×Standard minutes per hour]=90 Sorts per minute × 60min per hour=5,400 Standard sorts per hour

Determine the standard hours:

Standard hours =[Piece of mailStandard sorts per hour  

(b)

To determine
The direct labor time variance.

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