Homework Sourseou have started working as a cost accountant for a firm that
ou have started working as a cost accountant for a firm that has only been in business for one month. The firm is able to buy a new type of biodegradable plastic at a fixed price of $100 per roll. The plastic is then cut and sealed to make garbage bags. Fixed factory overhead is estimated to be $125,000 per month. During this past month, 8,000 cartons of garbage bags were produced, which represents 80% of the activity volume. You are given the following information:
Calculate the following:
Labour efficiency variance $_______________ (also favourable, unfavourable or neither)
| Rolls of plastic used | 40 | ||||
| Variable overhead incurred | $61,000 | ||||
| Overhead efficiency variance | $5,000 | U | |||
| Standard costs per carton of garbage bags: | |||||
| Labour hours | 2 | ||||
| Wage rate | $8 | per hour | |||
| Total overhead | $20 | ||||
| Rolls of plastic | 0.004 | rolls |
Solution
Calculation of labour efficiency variance:
(SH-AH)*SR or (SH*SR) - (AH*SR)
SH= Standard hours allowed for actual output
AH= Actual hours worked
SR= Standard rate.
Standard direct labour hours allowed for units produced are 8, 000 produced at 2 hours = 16,000hours
= [$20*16000HRS]-[($8*2)*16000 HRS]
= [$20*16000HRS]-[16*16000 HRS]
= $3, 20, 00 - $2, 56,000
= $64000 (unfavourable)
