Reference no: EM132546731

The accountant for Barry Ltd 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                     Standard direct labour hours allowed,

                                                     rate per hour                                   given April output

Labour class III                        $26.00                                             1,000

Labour class II                           $22.00                                                1,000

Labour class I                              $12.00                                                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                  $28.00                                                    1,100

Labour class II                     $23.00                                                  1,300

Labour class I                        $14.00                                                    750

Required:

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

i direct labour rate variance for each labour class.

ii direct labour efficiency variance for each labour class.

Question b) Discuss two advantages and two 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.