Question

Erie Company manufactures a mobile fitness device called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate are as follows: Standard Hours 24 minutes Standard Rate per Hour $5.80 Standard Cost $2.32 During August, 8,540 hours of direct labor time were needed to make 19,400 units of the Jogging Mate. The direct labor cost totaled $48,678 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19,400 Jogging Mates? 2. What is the standard labor cost allowed (SH SR) to make 19,400 Jogging Mates? 3. What is the labor spending variance? 4. What is the labor rate variance and the labor efficiency variance? 5. The budgeted variable manufacturing overhead rate is $4.50 per direct labor-hour. During August, the company incurred $44,408 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (For requirements 3 through 5, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.) 1. Standard labor-hours allowed 2. Standard labor cost allowed 3. Labor spending variance 4. Labor rate variance Labor efficiency variance 5. Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Solution

Standard labor hours Allowed	7760
Standard labor cost allowed	$        45,008.00
Labor Spending Variance	$          3,670.00	Unfavourable-U
Labor rate Variance	$              854.00	Favourable-F
Labor Efficiency variance	$          4,524.00	Unfavourable-U
Variable overhead Rate Variance	$          5,978.00	Unfavourable-U
Variable overhead Efficiency Variance	$          3,510.00	Unfavourable-U

Working

Actual DATA for		19400	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct labor	8540	$       5.70	$          48,678.00
Variable Overhead	8540	$       5.20	$          44,408.00

.

Standard DATA for		19400	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct labor	( 0.4 Hour x 19400 Units)=7760 Hour	$                   5.80	$            45,008.00
Variable Overhead	( 0.4 Hour x 19400 Units)=7760 Hour	$                   4.50	$            34,920.00

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    5.80	-	$                     5.70	)	x	8540
	854
	Variance		$                 854.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7760	-	8540	)	x	$              5.80
	-4524
	Variance		$             4,524.00			Unfavourable-U

.

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    4.50	-	$                     5.20	)	x	8540
	$         (5,978.00)
	Variance		$             5,978.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7760	-	8540	)	x	$              4.50
	$         (3,510.00)
	Variance		$             3,510.00			Unfavourable-U