Clark and Jones, Certified Public Accountants, employs 10 staff accountants who have accounting degrees, but who are not CPAs. Last tax season, the firm processed 5,000 tax returns. The data for last year to process the tax returns were:
Average time to complete one tax return
4 hours
Hourly rate paid to staff accountants
$15.00
Clark and Jones have learned from partners at other CPA firms that if they were to hire CPAs instead of accountants who are not certified, they could expect the rates and hours to be:
Average time to complete one tax return
2.5 hours
Hourly rate paid to staff accountants
$25.00
Required:
a.Treating last year's data as a "standard" and the proposed use of CPAs as "actual," calculate labor rate and efficiency variances assuming Clark and Jones decided to hire CPAs to do the tax returns this year, instead of the current employees. Indicate whether the variances are favorable or unfavorable.
b.Calculate total labor variance, and indicate whether it is favorable or unfavorable.
c.Discuss whether Clark and Jones should replace their current employees with CPAs.