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# Variances and cycle efficiency

Posters Now uses a standard cost system. Job 67 is for the manufacturing of 800 units of the product P100. The company's standards for one unit of product P100 are as follows:

Standard quantity: 11 Ounces
Standard price: \$3 per ounce
Standard direct labor: 1.5 hours
Standard Labor rate: \$12 per hour

The job required 8,000 ounces of raw material costing \$26,100. The job also used 1,250 labor hours at a rate of \$12.20 per hour.

a. What is the labor variance? Show computations.
b. What is the labor efficiency variance? Show computations.

Walker Corporation is a distributor of several products. They use a predetermined variable overhead rate based on direct labor hours. In the most recent month, 90,000 items were shipped to customers using 3,500 direct labor hours. The company incurred a total of \$12,600 in variable overhead costs. According to the company's standards, 0.04 direct labor hours are required to fulfill an order for one item and the variable overhead rate is \$3.500 per direct labor hour.

a. What is the variable overhead spending variance? Show computations.
b. What is the variable overhead efficiency variance? Show computations.

For the third quarter of the year, the following data was reported:

Inspection time 1.4 days
Process time 4.5 days
Wait time 12.0 days (the time between the customer order and the beginning of production)
Queue time 3.9 days
Move time 0.8 days

a. What is the throughput time? Show computations.
b. What is the manufacturing cycle efficiency for the quarter? Show computations.
c. What is the delivery cycle time? Show computations.

#### Solution Preview

1. a. What is the labor rate variance? Show computations.

Labor rate variance = (Actual rate - Standard rate) Actual hours
= (12.20 - 12) 1,250
= \$250 U as actual rate is higher

b. What is the labor efficiency variance? Show computations.

Labor efficiency variance = (Actual hours - Standard hours) Standard rate
=(1,250 - ...

#### Solution Summary

The solution explains how to calculate labor price & efficiency variance, throughput time and delivery cycle

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