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: $15Anticipated 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.
What will be an ideal response?
A.
B. Yes. A tight labor market often means that premium wages are needed to attract qualified employees. These wages would give rise to an unfavorable rate variance.
C. Gonzalez has two favorable variances: labor efficiency and material (paint) quantity. The favorable efficiency variance indicates that the crew is spending less time than budgeted, perhaps rushing the jobs and being a bit sloppy. It is also possible that employees are being somewhat skimpy in their use of paint, using less than expected (e.g., applying one coat rather than two in certain applications).
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