Concept explainers
CodeHead Software Inc. does software development. 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 more 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 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. The manager is trying to determine if a better 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 was 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 programmer?
1.
Compute the direct labor time variance, if the team had generated 4,650 lines of code according to the original plan.
Explanation of Solution
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:
- v Labor rate variance.
- v Labor time variance.
Determine the direct labor time variance.
Working note (1):
Compute the actual labor hours:
Working note (2):
Compute the standard direct labor hours:
The direct labor time variance is $448 and it is an unfavorable variance, since the actual direct labor hour is more than the standard direct labor hour.
2.
Compute the actual labor time variance, as a result of generating 5,650 lines of code.
Explanation of Solution
Determine the direct labor time variance.
Working note (3):
The direct labor time variance is $(832) and it is a favorable variance, since the actual direct labor hour is lesser than the standard direct labor hour.
3.
Compute the direct labor rate variance as a result of the bonus.
Explanation of Solution
Determine the direct labor rate variance.
The direct labor rate variance is $1,600 and it is an unfavorable variance, since the actual rate per hour is more than the standard rate per hour.
4.
Compute the labor time variance in the first week if a new employee had been hired from the employment firm.
Explanation of Solution
Determine the direct labor time variance:
Working note (4):
The direct labor time variance is $448 and it is an unfavorable variance, since the actual direct labor hour is more than the standard direct labor hour.
5.
State the decision that would be better, paying the bonus, or hiring another programmer.
Answer to Problem 5PA
Hiring an extra employee is the better decision when compared to paying the bonus as hiring another programmer is less costly.
Explanation of Solution
Determine the total direct labor cost time variance.
The direct labor cost variance for paying the bonus is $768 and it is an unfavorable variance, since the direct labor rate variance is more than the direct labor time variance. The labor cost variance in hiring another programmer would have been $448 which is unfavorable, which is less than the cost of paying the bonus.
Hence, the net benefit of hiring another programmer when compared to paying the bonus is $320
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Chapter 8 Solutions
MANAGERIAL ACCOUNTING-ACCESS
- Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another. Calens management is attempting to plan its production schedule for the next several months. The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs. Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months. Calen believes that the monthly demand for the next six months will be as follows: Inventory levels will not be increased or decreased during the next six months. The unit cost and price data for each product are as follows: Required: 1. Calculate the monthly requirement for machine hours and direct labor hours for producing Products 401, 402, and 403 to determine whether or not the factory can meet the monthly sales demand. 2. Determine the quantities of 401, 402, and 403 that should be produced monthly to maximize profits. Prepare a schedule that shows the contribution to profits of your product mix. 3. Assume that the machine hours available in Department 3 are 1,500 instead of 2,700. Calculate the optimal monthly product mix using the graphing approach to linear programming. Prepare a schedule that shows the contribution to profits from this optimal mix. (CMA adapted)arrow_forwardElliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of 25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,500 orders per year. The cost of each PC system is 1,100 per year. In addition to the salaries, Elliott spends 27,560 for forms, postage, and other supplies (assuming 26,000 purchase orders are processed). During the year, 25,350 orders were processed. Required: 1. Classify the resources associated with purchasing as (1) flexible or (2) committed. 2. Compute the total activity availability, and break this into activity usage and unused activity. 3. Calculate the total cost of resources supplied (activity cost), and break this into the cost of activity used and the cost of unused activity. 4. (a) Suppose that a large special order will cause an additional 500 purchase orders. What purchasing costs are relevant? By how much will purchasing costs increase if the order is accepted? (b) Suppose that the special order causes 700 additional purchase orders. How will your answer to (a) change?arrow_forwardIngles Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Ingles, but the table legs are purchased from an outside supplier. The Assembly Department takes a manufactured table top and attaches the four purchased table legs. It takes 16 minutes of labor to assemble a table. The company follows a policy of producing enough tables to ensure that 40 percent of next months sales are in the finished goods inventory. Ingles also purchases sufficient materials to ensure that materials inventory is 60 percent of the following months scheduled production. Ingless sales budget in units for the next quarter is as follows: Ingless ending inventories in units for July 31 are as follows: Required: 1. Calculate the number of tables to be produced during August. 2. Disregarding your response to Requirement 1, assume the required production units for August and September are 2,100 and 1,900, respectively, and the July 31 materials inventory is 4,000 units. Compute the number of table legs to be purchased in August. 3. Assume that Ingles Corporation will produce 2,340 units in September. How many employees will be required for the Assembly Department in September? (Fractional employees are acceptable since employees can be hired on a part-time basis. Assume a 40-hour week and a 4-week month.) (CMA adapted)arrow_forward
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