MIke Smith employs two workers in his guitar-making business. The first worker, George, has been making guitars for 20 years and is paid $20 per hour. The second worker, Earl, is less experienced, and is paid $10 per hour. One guitar requires, on average, 10 hours of labor. The budgeted direct labor quantities and prices for one guitar are as follows:
|
Quantity |
Price Per Hour of Labor |
Cost Of One Guitar |
| George |
6 hours |
$20 per hour |
$120 |
| Earl |
4 hours |
$10 per hour |
$40 |
During the month of August, Smith manufactures 25 guitars. Actual direct labor costs are as follows:
| Goerge (142 Hours) |
$2840 |
| Earl (120 Hours) |
$1200 |
| Total Actual Direct Labor Cost |
$4040 |
Requirements
1. What is the budgeted cost of direct labor for 25 guitars?
2. Calculate the total direct labor price and efficiency variances.
3. For the 25 guitars, what is the total actual amount of direct labor used? What is the actual direct labor input mix percentage? What is the budgeted amount of George's and Earl's labor that should have been used for the 25 guitars?
4. Calculate the total direct labor mix and yield variances. How do these numbers relate to the total direct labor efficiency variance? What do these variances tell you?