Description of Direct Labor Variances
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Richie Ventura operates a commercial painting business in Sacramento, which has a very tight labor market. Much of his work focuses on newly constructed apartments and townhouses.
The following data relate to crew no. 5 for a recently concluded period when 85 apartment units were painted:
-Three new employees were assigned to crew no. 5. Wages averaged $18.80 per hour for each employee; the crew took 2,550 hours to complete the work.
-Based on his knowledge of the operation, articles in trade journals, and conversations with other painters, Ventura established the following standards:
Typical hourly wage rate of crew personnel: $15
Anticipated crew time for each unit: 34 hours
-The paint quantity variance was $6,070F.
-The operation did not go as smoothly as planned, with customer complaints and problems being much higher than expected.
Answer the following showing complete work for each one:
A. Compute Ventura's direct-labor variances.
B. Is the direct-labor rate variance consistent with what you might expect in a tight labor market? Explain.
C. What has likely happened that would give rise to customer complaints?
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Solution Summary
In about 262 words, this solution explains how to calculate the direct labor variance and details its implications. All required calculations are provided in a step-wise manner.
Solution Preview
Answer the following showing complete work for each one:
A. Compute Ventura's direct-labor variances.
The labor rate variance is referring to the rate variance and the efficiency variance
Rate Variance = (Actual rate - Standard rate) Actual time
Actual rate = $18.80 per hour
Standard rate = $15 per hour
Actual time = 2,550 hours
Rate variance = (18.80-15) 2,550 = $9,690 U since ...
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