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Dear tutor, please help me with below question:
Zest Co has just completed the first three months of producing the Zest and is considering performing some labour variance analysis.
The standard cost per Zest for labour is $200 ($5 per hour). Now Zest Co is analyzing the data for month 3, when the company was expecting the average level of idle time to be 20% of the hour paid. The 90% learning curve arose only for the first 400 units and in month 3 when a steady state is then achieved. When units 401-650 were produced, the company paid for 5250 hours and the work force worked 4500 hours.
Questions
1) What was the idle time variance?
2) What was the labour efficiency varaince?The answer given revised the standard rate to $6.25 per hour (5/0.8=6.25). May I know why? Do I need to uplift the rate whenever there is a idle time?
Also in the answer, the standard time per unit was simply calculated as: 40x 400 -0.152 =16.09 hours/unit (the index for a 90% learning curve is -0.152)
To my understanding, in order to get the hour to produce the 400th unit, I need to calculate the total hours spent to produce 400 units, and minus the total hours spent to produce 399 units.
The answer I get is 14 hours per unit while the answer given was 16 hours. May I know is the answer correct?
Many thanks.
With regard to the idle time, it all depends on the question. It would appear that the original standard cost was assuming no idle time and that workers were paid $5 per hour, but in month three they are expecting idle time and therefore they will have to pay for more hours than are needed and therefore the standard cost for the 40 hours of work needed will indeed be $6.25 per hour (as is explained in my free lectures on this).
With regard to the learning curve part, it would seem that the answer you have is wrong and that your answer is correct.
Where did you find the question? If it was a past exam or if it was in the BPP Revision Kit then tell me which question so that I can check that you have not missed something in the wording of the question 🙂
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