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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 expenses for a service company

 The Radiology Department provides imaging services for Emergency Medical Center. One important activity in the Radiology Department is transcribing digitally recorded analyses of images into a written report, The manager of the Radiology Department determined that the average transcriptionist could type 700 lines of a report in an hour. The plan for the first week in May called for 81,900 typed lines to be written. The Radiology Department has three transcriptionists. Each transcriptionist is hired from ail employment Finn that requires temporary employees to be hired for a minimum of a 40-hour week. Transcriptionists are paid $23.00 per hour. The manager offered a bonus if' the department could type more lines for the week, without overtime. Due to high service demands, the transcriptionists typed more lines in the first week of May than planned. The actual amount of lines typed in the first week of May was 88,900 lines, without overtime. As a result, the bonus caused the average transcriptionist hourly rate to increase to $30.00 per hour during the first week in May.

 Instructions

 1.    If the department had typed 81,900 lines according to the original plan, what would have been the labor time variance?

 2.    What was the labor time variance as a result of typing 88,900 lines?

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

 4.    The manager is trying to determine if a better decision would have been to hire a temporary transcriptionist to meet the higher typing demands 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?

 5.    Which decision is better, paying the bonus or hiring another transcriptionist?

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

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 department had typed 81,900 lines 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]=[(120hours117 hours)× $23 per hour]=[3 hours× $23per hour]=$69 (1)

Actual labor hours=(Number of employees×Number 

2.

To determine
The actual labor time variance, as a result of typing 88,900 lines.

3.

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

4.

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

5.

To determine

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

6.

To determine

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

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