Alberto Gonzalez Operates a Commercial Painting Business in Tampa, Which

question 44

Essay

Alberto Gonzalez operates a commercial painting business in Tampa, which has a very tight labor market. Much of his work focuses on newly constructed apartments and townhouses.
The following data relate to crew no. 5 for a recently concluded period when 85 apartment units were painted:
· Three new employees were assigned to crew no. 5. Wages averaged $18.80 per hour for each employee; the crew took 2,550 hours to complete the work.
· Based on his knowledge of the operation, articles in trade journals, and conversations with other painters, Gonzalez established the following standards:
Typical hourly wage rate of crew personnel: $15
Anticipated crew time for each unit: 34 hours
· The paint quantity variance was $6,070F.
· The operation did not go as smoothly as planned, with customer complaints and problems being much higher than expected.
Required:
A. Compute Gonzalez's direct-labor variances.
B. Is the direct-labor rate variance consistent with what you might expect in a tight labor market? Explain.
C. Analyze the information given and that you calculated, and determine what likely happened that would give rise to customer complaints.

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Definitions:

Reservation Price Model

A model that defines the maximum price a consumer is willing to pay for a good or service.

Aggregate Demand

The aggregate need for all products and services in an economy, measured at a specific price level and during a particular time frame.

Marginal Revenue

The additional income generated from selling one more unit of a product or service.

Demand Curve

A graph showing the relationship between the price of a product and the quantity of the product that consumers are willing and able to purchase at various prices.