Basic Analysis of Direct Labor Variances Day-Mold was founded several years ago by two design- ers who developed several popular lines of living room, dining room, and bedroom furniture for other companies. The designers believed that their design for dinette sets could be standardized and would sell well. They formed their own company and soon had all the orders they could handle in their small plant in Dayton, Ohio.
The owners bought a microcomputer and software to produce financial statements. They thought all the information they needed was included in these statements.
Recently the employees have been requesting raises. The owners wonder how to evaluate these requests. At the suggestion of Day-Mold's CPA, who prepares the tax return, the owners have hired a CMA as a consultant to implement a standard cost system. The consultant believes that the calcula- tion of variances will aid management in setting responsibility for labor performance.
The supervisors believe that under normal conditions, a dinette set can be assembled with 5 hours of direct labor at a cost of $25 per hour. The consultant has assembled labor cost information for the most recent month and would like your advice in calculating direct labor variances.
During the month, the company paid $159,500 direct labor wages for 5,800 hours. The factory produced 1,200 dinette sets during the month.
Required
1. Compute direct labor variances for management's consideration.
2. Provide management with possible reasons for the variances.