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

Exercise 80

Direct labor variances — insurance company application The Foster Insurance Company developed standard times for processing claims. When a claimwas received at the processing center, it was first reviewed and classified as simple or complex. The standard time for processing was:

Simple claim	36 minutes
Complex claim	1.25 hours

Employees were expected to be productive 7.5 hours per day. Compensation costs were $135 per day per employee. During July, which had 20 working days, the following number of claims were processed:

Simple claims	3,000 processed
Complex claims	960 processed

Required:

a. Calculate the number of workers that should have been available to process July claims.

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b. Assume that 23 workers were actually available throughout the month of July. Calculate a labor efficiency variance expressed as both a number of workers and a dollar amount for the month.

Step 1 of 4

Direct labor variance-Insurance company case :

Direct labor variance : It means the discrepancy between the budgeted or standard direct labor costs at the beginning of work activity period with the actual direct labor cost toward the end of work activity period.