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 27 minutes Standard Rate per Hour $6.00 Standard Cost $2.70 During August, 9,375 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $54,375 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19,700 Jogging Mates? 2. What is the standard labor cost allowed (SH SR) to make 19,700 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 $46,875 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 Labor spending variance Labor rate variance Labor efficiency variance Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Solution

Standard labor hours Allowed	8865
Standard labor cost allowed	$        53,190.00
Labor Spending Variance	$          1,185.00	Unfavourable-U
Labor rate Variance	$          1,875.00	Favourable-F
Labor Efficiency variance	$          3,060.00	Unfavourable-U
Variable overhead Rate Variance	$          4,687.50	Unfavourable-U
Variable overhead Efficiency Variance	$          2,295.00	Unfavourable-U

Working

Standard DATA for		19700	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct labor	( 0.45 Hour x 19700 Units)=8865 Hour	$                   6.00	$            53,190.00
Variable Overhead	( 0.45 Hour x 19700 Units)=8865 Hour	$                   4.50	$            39,892.50

.

		19700	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct labor	9375	$       5.80	$          54,375.00
Variable Overhead	9375	$       5.00	$          46,875.00

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    6.00	-	$                     5.80	)	x	9375
	1875
	Variance		$             1,875.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8865	-	9375	)	x	$              6.00
	-3060
	Variance		$             3,060.00			Unfavourable-U
Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$         53,190.00	-	$           54,375.00	)
	-1185
	Variance		$             1,185.00			Unfavourable-U
Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    4.50	-	$                     5.00	)	x	9375
	$         (4,687.50)
	Variance		$             4,687.50			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8865	-	9375	)	x	$              4.50
	$         (2,295.00)
	Variance		$             2,295.00			Unfavourable-U