Reference no: EM132677526

Direct labor variances - insurance company application

The Foster Insurance Company developed standard times for processing claims. When a claim was 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:

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

Problem 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.