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Labor Variances and Union Contracts

The assistant controller said, "All the assembly workers are covered by union contracts, so there should be no labor variances." What do you think--is he correct? Why or why not.

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There are two variances: a labor rate variance and a labor efficiency variance. During the budgeting process, estimates are made of how much each worker will earn per hour on average (a standard labor rate per hour) as well as how many hours each worker will work on each unit produced on average (a standard number of labor hours per unit produced).

If workers' hourly wages are fixed by the union agreement, and no worker receives any wage differential not factored into the ...

Solution Summary

This solution addresses the question whether labor variances should exist in a unionized environment.