Question

The accountant for Daily Manufacturing compares each month's actual results with the monthly budget.The standard direct labour rates and the standard hours allowed based on expected labour output are as follows :
                      Standard direct labour rate         Standard direct labour hours
                             per hour                                   allowed
Labour class 3         $25                                                2000
Labour class 2         $22                                                2000
Labour class1         $16                                                2000

A new union contract negotiated in March  resulted in actual wage rates that  were different from the standard rates. The actual wage rates paid and the actual direct labour hours worked for April  were as follows:
                        Actual direct labour rate             Actual direct labour hours
                               per hour
Labour class 3        $26.20                                          2100
Labour class 2        $23.80                                          2350
Labour class 3        $16.80                                        1900

Required :

1. Calculate the following variances for April indicating

whether each is favourable or unfavourable:
(a)Direct labour rate variance for each labour class
(b)Direct labour efficiency variance for each labour class

2. Discuss the advantages and disadvantages of a standard costing system in which the standard direct labour rates per hour are not changed during the year to reflect events such as a new labour contract.

3.Construct an Excel or other spreadsheet to demonstrate how the solution to part 1 would change if the following information changes:the actual labour rates were $27.00, $22.90 and $17.00 for labour classes 3,2 and 1 respectively.