Explorer Inc, manufactures lanterns for camping. the company's direct labor rates have been set by the terms of the current labor contract. Direct labor rate standards have been assigned for each job classification. In May 20xx, a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes. A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in May. Standard time for the same work output is 32 hours. The apprentice earned $6.25 per hour in May. The standard labor rate for machine operators working on turret lathes is $10 per hour.
1) From the data provided, determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator. (per the labor contract, the apprentice is not entitled to the same rate as a reg machine operator during the training period)
2) Did the company benefit financially from the situation? Why or why not?
1) Direct labor efficiency variance = (Actual hours - Standard hours) Standard rate
Actual hours = 48
Standard hours = 32
Standard rate = 10 per hour
The solution discusses direct labor efficiency variance and direct labor rate variance.