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

Exercise 26

Direct labor variances—solving for unknowns Ackerman’s Garage uses standards to plan and control labor time and expense. The standard time for an engine tune-up is 3 hours, and the standard labor rate is $25 per hour. Last week, 42 tune- ups were completed. The labor efficiency variance was 14 hours unfavorable, and the labor rate variance totaled $140 favorable.

Required:

a. Calculate the actual direct labor hourly rate paid for tune-up work last week.

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b. Calculate the dollar amount of the labor efficiency variance.

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c. What is the most likely explanation for these two variances? Is this a good trade-off for the management of the garage to make? Explain your answer.

Step 1 of 4

a.

Compute actual direct labor hourly rate paid as follows: