Red Glare Products Uses a Standard Costing System to Assist

question 84

Essay

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.

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Definitions:

Analytical Cognition

A cognitive style characterized by logical reasoning, systematic analysis, and a focus on objective evaluation of information.

Homogenous

Consisting of parts or elements that are all the same or similar in nature.

Cultural Evolution

The process by which societies and cultures change over time through mechanisms such as innovation, transmission, and selection.

Cultural Transmission

The process through which cultural beliefs, practices, and values are passed down from one generation to the next.