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Direct Labor Variances in a Tight Labor Market

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Rich 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.

1. Compute Ventura's direct labor variances.
2. Is the direct labor rate variance consistent with what you might expect in a tight labor market? Explain.
3. What has likely happened that would give rise to customer complaints?

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Solution Summary

This solution looks at direct labor variances for a commercial painting business operating in a tight labor market.

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Price variance = (Actual price of input - Budgeted price of input) à? Actual quantity of input.
<br>Efficiency variance = (Actual quantity of input used - Budgeted quantity of input allowed for actual output units achieved à? Budgeted ...

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