Question

Dog Kennel had a labor cost budget of $100,000 for the year. It expected its staff costs related to grooming, feeding, walking, and so on to vary in direct proportion with the number of dogs, based on an hourly rate of $20 for staff, and a need for 10 hours of staff time per dog (before the dogs were adopted). In its budget for the year, it planned on rescuing 500 dogs. It turned out that it rescued 640 dogs for the year. The staff average cost turned out to be just $16 per hour. Staff were paid for a total of 6,000 hours. What is the total labor variance? Was it favorable or unfavorable? Why? Did the number of dogs rescued result in a favorable or unfavorable volume variance? (You do not have to calculate the flexible variance.) Did the number of hours of labor actually consumed for each dog cause a favorable or unfavorable variance? (You do not have to calculate the flexible variance.) Hint: For the volume variance, it should be in terms of the number of dogs rescued, not in terms of dollars and the quantity (efficiency) variance should be in terms of hours per dog, not in terms of dollars.

Answer 1

budgeted labor cost = $100,000

actual labor cost = 6000 hours @ $16/hour

6000*16 = $96,000

therefore, total labor variance = budgeted cost- actual cost

= $4000 (favourable)

it is favourable because the costs are less than the budget of Dog Kennel.

The number of dogs rescued resulted in a favourable volume variance since 640 dogs were rescued whereas planned was 500 dogs.

the number of hours caused for each dog cause a favourable variance since for 640 dogs, the standard hours would be 6400 hours (640*10). However, the were paid for 6000 hours only.