The Metal Machining Company specialises in manufacturing brake wheel cylinders f
ID: 2404317 • Letter: T
Question
The Metal Machining Company specialises in manufacturing brake wheel cylinders for motor cars. It buys castings which are then turned, bored and polished. A standard cost system is employed. The standard prime cost data per wheel cylinder are as follows:
Casting $8.00
Direct labour - ½ hr @ $12 per hr 6.00
Standard prime cost $14.00
For the Turning Department the standard machine time for one cylinder is 5 minutes. Overhead in this department is allocated using standard machine hours as the cost driver. Budgeted overhead for the year consisted of $80 000 fixed costs and $120 000 variable costs.
Budgeted output for the year was 120 000 cylinders. Actual output was 100 800 units. Other results for the year were:
Castings purchased and used - 101 000 @ $7.60 $767 600
Direct labour - 55 000 hours @ $12.40 per hour 682 000
Fixed overhead - Turning Department 84 000
Variable overhead - Turning Department 116 000
Machine hours - Turning Department 9 500
Find labor efficiency variable.
Explanation / Answer
Labor efficiency variance = Standard rate x (Actual hours – Standard hours)
Standard hours = Actual output x Standard hours per unit of output = 100800 units x ½ hour = 50400 hours
Labor efficiency variance = $12 x (55000 – 50400) = $12 x 4600 = $55200 Unfavorable