EXERCISE 2- LO1, LO2, LO3

Di Angelo Products uses a standard costing system to assist in the evaluation of operations. The company has had considerable employee difficulties in recent months, so much so that management has hired a new production supervisor (Joe Simms). Simms has been on the job for six months and has seemingly brought order to an otherwise chaotic situation. The vice-president of manufacturing recently commented that " Simms has really done the trick. Joe's team-building/morale-boosting exercises have truly brought things under control." The vice-president's comments were based on both a plant tour, where he observed a contented work force, and review of a performance report that showed a total labour variance of 14,000F. This variance is truly outstanding, given that it is less than 2% of the company's budgeted labour cost. Additional data follow. Total completed production amounted to 20,000 units. A review of the firm's standard cost records found that each completed unit requires 2.75 hours of labour at 14 per hour. DiAngelo's production required 42,000 labor hours at a total cost of 756,000.

Required:

A. As judged by the information contained in the performance report, should the vice-president be concerned about the company's labour variances? Why? (5 marks)

B. Calculate DiAngelo's direct-labor variances. (10 marks)

C. Based on your answers to requirement "B," should DiAngelo be concerned about its labor situation? Why? (10 marks)

D. Briefly analyze and explain the direct-labor variances. (5 marks)