Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 20

Performance reporting and flexible budgeting For the stamping department of a manufacturing firm, the standard cost for direct labor is $12 per hour, and the production standard calls for 1,000 stampings per hour. During June, 168 hours were required for actual production of 148,000 stampings. Actual direct labor cost for the stamping department for June was $2,184.

Required:

a. Complete the following performance report for June:

	Flexed Budget	Actual	Budget Variance
Direct labor

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b. Analyze the budget variance by calculating the direct labor efficiency and rate variances for June.

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c. What alternatives to the preceding monthly report could improve control over the stamping department”s direct labor?

Step 1 of 5

a.

The standard cost for direct labor is $12 per hour and the standard stampings per hour are 2,000. The actual hours required for the actual production of 230,000 stampings is 121 hours. The actual direct labor cost is $1,573 for the month of February.

Flexible budget of direct labor

Calculate the standard hours for actual production as follows:

The standard hours for actual production of 230,000 stampings are 115 hours

Now calculate the flexible budget of direct labor as below: