Pease Contractors is a local home remodeling company. In analyzing financial performance, the accountant compares actual results with a flexible budget. The standard direct labor rates used in the flexible budget are established each year at the time the annual plan is formulated and held constant for the entire year. The standard direct labor rates in effect for the current fiscal year and the standard hours allowed for the actual output of work for August are shown in the following schedule. Worker Classification Standard Direct Labor Rate per Hour Standard Direct Labor-Hours Allowed for Output Supervisor $ 50 1,800 Skilled 30 2,250 General 20 4,950 The actual direct labor-hours worked and the actual direct labor rates per hour experienced for the month of August were as follows. Worker Classification Actual Direct Labor Rate per Hour Actual Direct Labor-Hours Supervisor $ 54 2,112 Skilled 32 2,112 General 18 5,376 Required: Calculate the dollar amount of the total direct labor variance for August for Pease Contractors. Break down the total variance into the following components: a. Direct labor price and efficiency variances. b. Direct labor mix and yield variances.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Pease Contractors is a local home remodeling company. In analyzing financial performance, the accountant compares actual results with a flexible budget. The standard direct labor rates used in the flexible budget are established each year at the time the annual plan is formulated and held constant for the entire year.
The standard direct labor rates in effect for the current fiscal year and the standard hours allowed for the actual output of work for August are shown in the following schedule.
| Worker Classification | Standard Direct Labor Rate per Hour | Standard Direct Labor-Hours Allowed for Output |
|---|---|---|
| Supervisor | $ 50 | 1,800 |
| Skilled | 30 | 2,250 |
| General | 20 | 4,950 |
The actual direct labor-hours worked and the actual direct labor rates per hour experienced for the month of August were as follows.
| Worker Classification | Actual Direct Labor Rate per Hour | Actual Direct Labor-Hours |
|---|---|---|
| Supervisor | $ 54 | 2,112 |
| Skilled | 32 | 2,112 |
| General | 18 | 5,376 |
Required:
Calculate the dollar amount of the total direct labor variance for August for Pease Contractors. Break down the total variance into the following components:
a. Direct labor price and efficiency variances.
b. Direct labor mix and yield variances.
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