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Labor Variances and Union Contracts

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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.

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Standards and Budgets, and Direct Labor Variance Matrix

1. Explain the similarities and differences between standards and budgets. Contrast the accounting for standards and budgets.

2. In the direct labor variance matrix, there are three factors: (1) Actual hours Actual rate, (2) Actual hours Standard rate, and (3) Standard hours Standard rate. Using the numbers, indicate the formulas for wach of the direct labor variances.

3. The following direct materials and direct labor data pertain to the operations of Batista manufacturing Company for the month of August.

Cost Quantities
Actual Labor $13 per hour Actual hours incurred and used 4,250 hours

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Compute the total, price, and quantity variances for materials and labor. Provide two possible explanations for each of the unfavorable variances calculated above, and suggest where responsibility for the unfavorable result might be placed.

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