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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

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

Standards for nonmanufacturing expanses

 Code Head Software Inc. is a software development company. One important activity in software development is writing software code. The manager of the WordPro Development Team determined that the average software programmer could write 25 lines of code in an hour. The plan for the first week in May called for 4,650 lines of code to be written on the WordPro product. The WordPro Team has five programmers. Each programmer is hired from an employment firm that requires temporary employees to be hired for a minimum of a 40-hour week. Programmers are paid $32.00 per hour. The manager offered a bonus if the team could generate mere lines for the week, without overtime. Due to a project emergency, the programmers wrote more code in the first week of May than planned. The actual amount of code written in the first week of May was 5,650 lines, without overtime. As a result, the bonus caused the average programmer’s hourly rate to increase to $40.00 per hour during the first week in May.

 Instructions

 1.    If the team had generated 4,650 lines of code according to the original plan, what would have been the labor time variance?

 2.    What was the actual labor time variance as a result of generating 5,650 lines of code?

 3. What was the labor rate variance as a result of the bonus?

 4.    Are there any performance-related issues that the labor time and rate variances fail to consider? Explain.

 5.    The manager is trying to determine if a belter decision would have been to hire a temporary programmer to meet the higher programming demand in the first week of May, rather than paying out the bonus. If another employee had been hired from the employment firm, what would have been the labor time variance in the first week?

 6.    Which decision is belter, paying the bonus or hiring another programmer?

1.

To determine

Direct labor variances:

The difference between the actual labor cost in the production and the standard labor cost for actual production is known as direct labor cost variance. The direct labor variance can be classified as follows:

    • Labor rate variance.
    • Labor time variance.

To determine: The direct labor time variance, if the team had generated 4,650 lines of code according to the original plan.

Explanation

Determine the direct labor time variance.

Direct labor time variance} = [(Actual direct labor hours (2)Standard direct labor hours (3))× Standard rate per hour]=[(200hours186 hours)× $32 per hour]=[14 hours× $32per hour]=$448 (1)

Actual labor hours=(Number of employees×Number 

2.

To determine
The actual labor time variance, as a result of generating 5,650 lines of code.

3.

To determine
The direct labor rate variance as a result of the bonus.

4.

To determine

To explain: The performance-related issues that the labor time, and rate variances fail to consider, if any.

5.

To determine
The labor time variance in the first week if a new employee had been hired from the employment firm.

6.

To determine

To identify: The better decision between paying the bonus, and hiring another programmer.

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