Lily Music manufactures harmonicas. Lily uses standard costs to judge performance. Recently, a clerk mistakenly threw away some of the records, and only partial data for June exist. Lily knows that the total direct labor variance for the month was $370 F and that the standard labor rate was $8 per hour. A recent pay cut caused a favorable labor rate variance of $0.30 per hour. The standard direct labor hours for actual June outputs were 5,340. Read the requirements Select the formula, then calculate the actual price per hour. Standard direct labor hours - - Actual direct labor rate per hour Standard direct labor rate per hour 0.30 Determine the actual number of direct labor hours worked by setting up the computation of the total direct labor variance as given. (Enter the known amounts, then determine the missing amounts to solve for the actual direct labor hours. Enter the amounts as positive numbers. Label the variance as favorable (F) or unfavorable (U).) Lily Music Schedule to Compute Actual Direct Labor Hours Requirements - X Flexible budget for actual output Flexible budget variance Actual Direct labor hours 5340 1. Find the actual number of direct labor hours worked during June. First, find the actual direct labor rate per hour. Then, determine the actual number of direct labor hours worked by setting up the computation of the total direct labor variance as given. 2. Compute the direct labor rate and efficiency variances. Do these variances suggest that the manager may have made trade-offs? Explain. Cost per hour Total direct labor cost Flexible budget variance Lily Music manufactures harmonicas. Lily uses standard costs to judge performance. Recently, a clerk mistakenly threw away some of the records, and only partial data for June exist. Lily knows that the total direct labor variance for the month was $370 F and that the standard labor rate was $8 per hour. A recent pay cut caused a favorable labor rate variance of $0.30 per hour. The standard direct labor hours for actual June outputs were 5,340. Read the requirements Flexible budget variance =U Requirement 2. Compute the direct labor rate and efficiency variances. Do these variances suggest that the manager may have made trade-offs? Explain. (Enter the variances as positive numbers. Enter currency amounts to the nearest cent and your answers to the nearest whole dollar. Label the variances as favorable (F) or unfavorable (U). Abbreviations used: DL = Direct labor.) Begin by determining the formula for the price variance, then compute the price variance for direct labor. ) = J) = DL rate variance 0 x Now determine the formula for the efficiency variance, then compute the efficiency variance for direct labor. J) = DL efficiency variance Do these variances suggest that the manager may have made trade-offs? Explain. direct labor efficiency variance suggests that the manager may have used higher-paid, more efficient workers. However, due to the overall net effect, The favorable direct labor rate variance combined with the favorable it appears there was a reasonable trade-off
