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 Standard per Hour Cost $5.80 $5.80 $2.32 During August, 8,400 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $47,040 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19,500 Jogging Mates? 2. What is the standard labor cost allowed (SH SR) to make 19,500 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 $4.30 per direct labor-hour. During August, the company incurred $40,320 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.) Standard labor-hours allowed 2. Standard labor cost allowed 3. Labor spending variance 4. Labor rate variance Labor efficiency variance Variable overhead rate variance Variable overhead efficiency variance

Answer 1

	24 minutes in hours = 24 / 60	0.4	hours
1.	Standard labor hours allowed to make 19500 Jogging mates = Standard hours per unit * 19500 = 0.4 * 19500	7800	hours
2.	Standard labor Cost allowed = Standard labor hours allowed * Standard rate per hour = 7800 * 5.80	45240
3.	Labor spending variance = Standard labor cost allowed - Actual labor cost = 45240 - 47040	1800	U
4.	Actual labor rate = Actual labor cost / Actual labor hours = 47040 / 8400	5.60
	Labor rate variance = ( Standard rate - Actual rate ) * Actual hours = ( 5.80 - 5.60 ) * 8400	1680	F
	Labor efficiency variance = ( Standard hours - Actual hours ) * Standard rate = ( 7800 - 8400 ) * 5.80	3480	U
5.	Actual variable overhead rate = Actual variable overhead cost / Actual hours = 40320 / 8400	4.80
	Variable overhead rate variance = ( Standard rate - Actual rate ) * Actual hours = ( 4.30 - 4.80 ) * 8400	4200	U
	Variable overhead efficiency variance = ( Standard hours - Actual hours ) * Standard rate = ( 7800 - 8400 ) * 4.30	2580	U