Problem 11-4 K&J Web Designs creates Web sites for businesses. K&J has a basic W
ID: 2473269 • Letter: P
Question
Problem 11-4
K&J Web Designs creates Web sites for businesses. K&J has a basic Web site creation package that it offers for a flat fee of $750. This package includes everything that a business would need to have a simple but functional Web site built. K&J estimates that each of these Web sites should take, on average, 7.5 hours of Web designer time. K&J pays its Web design employees an average of $36 per hour.
Last month, K&J sold and built 130 Web sites for $750 each. Web design employees worked a total of 830 hours at a total payroll cost of $41,500.
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Explanation / Answer
Labor cost Budgets and actual cost
Calculating Labor rate variance = Actual Time Taken ( Standard rate - actual rate)
= 830 hrs ( 36 - 50) , = 11620 Unfavourable
Labor efficiency variance = Standard Rate ( Standard Time for actual output - Actual time)
= 36 ( 975 - 830) = 5220 Favourable
Standard amount of contribution margin, = Sales Value - Per web site budgeted labor cost
= 750 - 270, = 480
Actual amount of contribution margin = Sale Value - per web site actual labor cost
Total actual labor cost , = 41500
Web sites developed = 130
Per web site actual labor cost, = Total cost / number of sites developed
= 41500 / 130, = 319
Actual contribution margin = 750 - 319, = 431
Budget per website Time Rate Cost 7.5 hrs $ 36 per hr 270 Budget 130 web sites Time taken = 7.5 hrs x 130 web sites Time Rate Cost 975 hrs $ 36 per hr 35100 Actual Cost Time Rate Cost 830 hrs 50 41500