CodeHead Software Inc. does software development. One important activity in software development is writing software code. The manager of the WordPro Development Team determined that the average software programmer could write 25 lines of code in an hour. The plan for the first week in May called for 4,650 lines of code to be written on the WordPro product. The WordPro Team has five programmers. Each programmer is hired from an employment firm that requires temporary employees to be hired for a minimum of a 40-hour week. Programmers are paid $32.00 per hour. The manager offered a bonus if the team could generate more lines for the week, without overtime. Due to a project emergency, the programmers wrote more code in the first week of May than planned. The actual amount of code written in the first week of May was 5,650 lines, without overtime. As a result, the bonus caused the average programmer's hourly rate to increase to $40.00 per hour during the first week in May. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. If an amount is zero, enter "0" and choose "Not applicable" from the dropdown.

Required:

a. If the team generated 4,650 lines of code according to the original plan, what would have been the labor time variance?
b. What was the actual labor time variance as a result of generating 5,650 lines of code?
c. What was the labor rate variance as a result of the bonus?
d. The manager is trying to determine if a better decision would have been to hire a temporary programmer to meet the higher programming demand in the first week of May, rather than paying out the bonus. If another employee was hired from the employment firm, what would have been the labor time variance in the first week?

(a)  Labor time variance =     = $448Unfavourable

(b) Actual labor time variance = $832Favourable

(c) Labor rate variance = $1,600 Unfavourable

(d) Labor time variance if another employee was hired =$448Unfavourable  

Explanation:

Given Data:

Standard quantity of output per hour per programmer = 25 lines    

Standard rate per hour = $32      

Budgeted output for first week in May = 4650 lines    

Actual output= 5650 lines    

Actual rate per hour = $40      

Standard hours for 4650 lines(4650/25) = 186      

Actual hours=5*40= 200

a. Calculating the labor time variance using the formula;    

Labor time variance = Standard rate*(Actual hour-Standard hour)                                        =$32*(200-186)

                                  = $448Unfavourable

b. Calculating the actual labor time variance using the formula;

Labor time variance = Standard rate*(Actual time-Standard time)

But,

Standard time for 5650 lines = (5650/25) = 226 hours    

Therefore,  

Labor time variance = $32*(200-226)

                                 = $832Favourable  

c. Calculating the labor rate variance using the formula;

Labor rate variance = Actual hour*(Actual rate-Standard rate)    

Labor rate variance = 200*(40-32)

                                 = $1,600 Unfavourable    

4. Calculating the labor time variance if another employee was hired , we have      

Actual labor time=6*40= 240      

Actual labor rate =$32      

Labor time variance = Standard rate*(Actual hour -Standard hour)                                        =$32*(240-226)

                                  = $448Unfavourable    

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