Reference no: EM132516328

The accountant for lovely Manufacturing Company compares each month's actual results with a monthly plan. The standard direct labour rates and the standard hours allowed, given the actual output in April, are shown in the following schedule:

                      Standard direct labour rate                 Standard direct labour hours allowed

                                    per hour given                                 April output

Labour class III                    $36.00                                1 000

Labour class II                     $32.50                                1 000

Labour class I                      $22.50                                    1 000

A new union contract negotiated in March resulted in actual wage rates that differed from the standard rates. The actual direct labour hours worked and the actual direct labour rates per hour for April were as follows.

                           Actual direct labour rate per hour                     Actual direct labour hours

Labour class III             $38.70                                                     1 100

Labour class II              $33.75                                                    1 300

Labour class I              $24.30                                                       750

Required:

Question 1. Calculate the following variances for April, indicating whether each is favourable or unfavourable:

(a) direct labour rate variance for each labour class

(b) direct labour efficiency variance for each labour class.

Question 2. Discuss the advantages and disadvantages of a standard costing system in which the standard direct labour rates per hour are not changed during the year to reflect events such as a new labour contract.