Reference no: EM132687172

Problem - Standards for Nonmanufacturing Expenses

Diamond 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 40 lines of code in an hour. The plan for the first week in May called for 6,200 lines of code to be written on the WordPro product. The WordPro Team has four 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 $25.00 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 7,200 lines, without overtime. As a result, the bonus caused the average programmer's hourly rate to increase to $32.00 per hour during the first week in May.

Instructions -

1. If the team generated 6,200 lines of code according to the original plan, what would have been the labor time variance?

2. What was the actual labor time variance as a result of generating 7,200 lines of code?

3. What was the labor rate variance as a result of the bonus?

4. Are there any performance-related issues that the labor time and rate variances fail to consider? Explain.

5. 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?

6. Which decision is better, paying the bonus or hiring another programmer?