Direct Labor Variances

Bellingham Company produces a product that requires 7 standard direct labor hours per unit at a standard hourly rate of $16.00 per hour. If 2,300 units used 15,600 hours at an hourly rate of $16.32 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

a. Direct labor rate variance	$
b. Direct labor time variance	$
c. Direct labor cost variance	$

Decision on transfer pricing

Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $379 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of $315 per unit.

Assume that a transfer price of $360 has been established and that 42,100 units of materials are transferred, with no reduction in the Components Divisions current sales.

a. How much would XPort Industries total income from operations increase? $

b. How much would the Instrument Divisions income from operations increase? $

c. How much would the Components Divisions income from operations increase? $

d. Any transfer price will cause the total income of the company to , as long as the supplier division capacity is toward making materials for products that are ultimately sold to the outside.

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