Piper Corporation’s standards call for 3,100 direct labor-hours to produce 1,550 units of product. During October the company worked 1,100 direct labor-hours and produced 1,100 units. The standard hours allowed for October would be: A) 3,100 hours B) 1,450 hours C) 2,200 hours D) 2,000 hours
The correct answer and explanation is:
Correct Answer: C) 2,200 hours
Explanation:
To find the standard hours allowed for actual production, the formula used is:
Standard Hours Allowed = (Standard Hours per Unit) × (Actual Units Produced)
First, calculate the standard number of direct labor-hours per unit using the information given:
- Standard: 3,100 direct labor-hours for 1,550 units
So, Standard hours per unit=3,100 hours1,550 units=2 hours per unit\text{Standard hours per unit} = \frac{3,100 \text{ hours}}{1,550 \text{ units}} = 2 \text{ hours per unit}
Now, the actual number of units produced in October was 1,100 units.
Therefore, the standard hours allowed for October’s production is: Standard Hours Allowed=2 hours/unit×1,100 units=2,200 hours\text{Standard Hours Allowed} = 2 \text{ hours/unit} \times 1,100 \text{ units} = 2,200 \text{ hours}
This means, based on the company’s labor standards, 2,200 direct labor-hours should have been used to produce 1,100 units in October.
The concept of standard hours allowed is important in variance analysis, particularly when evaluating labor efficiency. If the actual hours worked differ significantly from the standard hours allowed, the company may analyze the causes of this variance. A positive variance could mean better efficiency, while a negative variance may point to inefficiencies, poor planning, or unexpected delays.
In this case, Piper Corporation only worked 1,100 direct labor-hours but the standard called for 2,200 hours for the level of output achieved. This could indicate a highly favorable labor efficiency variance, suggesting that labor was used far more efficiently than expected. However, further analysis would be needed to verify that product quality and other standards were maintained.