Past exam paper december 2012 question 2 part b

Hi

I cannot write the whole answer on here, but if you tell me which part of the answer you are not sure about then I will try my best to explain to you.

The original standard cost was: 0.5 hours at $12 per hour = $6 per unit.

The revised standard cost is: 0.6 hours (20% slower) at $11.40 per hour (5% pay cut).

You can do the working for the variances is several ways .

For labour rate operational variance you compare what was actually paid, with what should have been paid for the actual hours at the revised standard cost per hour.

The total actually paid was $136,800.
The total they should have paid is 12,000 hours (the actual hours) x $11.40 (the revised standard cost per hour) = $136,800
The variance is therefore zero.

For the labour efficiency planning variance, you compare the revised standard hours for the actual production with the original standard hours for the actual production, and cost out at the original standard cost per hour.

They actually produced 20,500 units, and at original standard hours per unit this should have taken 20,500 x 0.5 hours = 10,250 hours.
At revised standard hours per unit it should have taken 20,500 x 0.6 hours = 12,300 hours.
So revised took 12,300 – 10,250 = 2,050 hours longer.
Costing this out at the original standard cost per hour gives 2,050 x $12 = $24,600 (adverse because the revised hours were longer than original).

You are very welcome 🙂