Question

Paulson’s Piano Service, Inc. is trying to establish the standard labor cost of tuning a typical piano. The following data have been collected from time and motion studies conducted over the past three months.

            Actual time spent on tuning a piano   1.25 hours

            Hourly wage rate                                $50

            Payroll taxes                                       12% of wage rate

            Setup and downtime                           5% of actual labor time

            Travel and rest periods                       15% of actual labor time

            Fringe benefits                                    20% of wage rate

Instructions

(a)        Determine the standard direct labor hour per each piano that is tuned.

(b)        Determine the standard direct labor hourly rate.

(c)        Determine the standard direct labor cost per each piano that is tuned.

(d)        If it took 1.65 hours to tune a piano at the standard hourly rate, what was the direct labor quantity variance?

(e)        During the month of May, Paulson’s Piano service tuned 80 pianos. The average time spent on each piano was 1.75 hours. The average cost per hour was $62.25 per hour. Paulson’s had to hire some less experienced part time help in order to handle the demand.

            (1)        Calculate the direct labor price variance.

            (2)        Calculate the direct labor quantity variance.

            (3)        Calculate the total direct labor variance.

            (4)        Explain what might have caused the variances.

Answer 1

a. Standard Direct labour hour = 1.25 hours + 1.25 * 5% + 1.25 * 15 % = 1.25 + 0.0625 + 0.1875 = 1.50 hours

b. Standard Direct labour hourly rate = $ 50 + 50 * 12% + 50 * 20 % = 50 + 6 + 10 = $ 66

c. $ 66 * 1.50 = $ 99

d. Direct labour quantity variance = ( 1.5 - 1.65 ) * 66 = $ 9.9 ( unfav. )

e. 1. DLPV = ( SP - AP ) * AH = ( 66 - 62.25 ) * 80 * 1.75 = $ 525 ( fav. )

e.2 DLQV = ( SH allowed - AH ) * SR = ( 1.5 - 1.75 ) * 80 * 66 = $ 1320 ( unfav. )

e. 3 Total DL variance = 525 ( f ) - 1320 ( u ) = $ 795 ( U )

e.4 use of less experienced part time help