Intermediate: Calculation of labour variances and preparation of wages control account The finishing department of a company manufacturing two different products employs 60 direct operatives working a basic 40-hour week. The company operates a standard costing system and the finishing department's standard direct labour cost for each of the two products is: Product X £12 per unit and Product Y £2 per umt.

The standard wage rate for the operatives in the finishing department is £4 per hour and the company offers a guaranteed wage of £160 per week for each direct operative. Overtime premium, which is not included in standard product costs, is paid at time rate plus one third.

The following results occurred in the finishing department during the previous two months:

In the second month all 60 direct operatives were standing 1dle for 10 hours as a result of equipment breakdowns.
Required:

(a) Calculate the finishing department's productivity (or efficiency) ratio for month 1. (3 marks)

(b) Calculate the efficiency variances, together with any other variances from standard labour cost. which occurred in the finishing department during each of the previous two months. (8 marks)

(c) Write up the entries for the first month's wages m the finishing department's wages control account and work in progress control account, including the entries for the appropnate variances calculated in

(b) above. (4 marks)

(d) Consider whether the efficiency variances which you have calculated are likely to measure the net effect on the company's profit of direct operatives being more or less efficient than that specified by the standard

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Output: Product X Product Y Gross wages paid to direct operatives Productive hours worked by direct operatives Number of hours for which Month 1 2200 units Month 2 2300 units 5250 units 4700 units 44 800 39 600 10 800 hours 9000 hours direct operatives were paid: Ordinary time Overtime 9600 hours 9600 hours 1200 hours Nil