Red Glare Products Uses a Standard Costing System to Assist

Red Glare Products uses a standard costing system to assist in the evaluation of operations. The company has had considerable employee difficulties in recent months, so much so that management has hired a new production supervisor (John Silver). Silver has been on the job for six months and has seemingly brought order to an otherwise chaotic situation.
The vice-president of manufacturing recently commented that "… Silver has really done the trick. John's team-building/morale-boosting exercises have truly brought things under control." The vice-president's comments were based on both a plant tour, where he observed a contented work force, and review of a performance report that showed a total labour variance of $14,000F. This variance is truly outstanding, given that it is less than 2% of the company's budgeted labour cost. Additional data follow.
Total completed production amounted to 20,000 units.
A review of the firm's standard cost records found that each completed unit requires 2.75 hours of labour at $14 per hour. Red Glare's production actually required 42,000 labour hours at a total cost of $756,000.
Required:
A. As judged by the information contained in the performance report, should the vice-president be concerned about the company's labour variances? Why?
B. Calculate Red Glare's direct-labour variances.
C. On the basis of your answers to requirement "B," should Red Glare be concerned about its labour situation? Why?
D. Briefly analyze and explain the direct-labour variances.

Correct Answer:

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A. No. The variance is favourable and sm...

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