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	Standard Rate per Hour	Standard Cost
30 minutes	$5.60	$2.80

During August, 10,640 hours of direct labor time were needed to make 19,900 units of the Jogging Mate. The direct labor cost totaled $58,520 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,900 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,900 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 $53,200 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

1	Standard labor-hours allowed	9950	Hours
2	Standard labor cost allowed	$55,720
3	Labor spending variance	$2800	U
4	Labor rate variance	$1,064	F
	Labor efficiency variance	$3,864	U
5	Variable overhead rate variance	$5,320	U
	Variable Overhead Efficiency Variance	$3,105	U

Working Note:

1. Standard labor-hours allowed

Standar dlaborhour sallowed Unitsproducedx StandardHour

Standar dlaborhour sallowed 19900X.5

2. Standard labor cost allowed

Standardlaborcostallowed Standard Labor Hour X Standard Rate

Standardlaborcostallowed 9950 X$5.6

3. Labor Spending Variance

Labor Spendingvariance (StandardHour X Standard Rate)- Actual E.cpense

Labor Spendingvariance (9950 X $5.6) – $58520

Labor Spendingvariance = $55720 - $58520

4. Labor Rate Variance

Labor Ratev ariance $5.6 X 10640) – $58520

Labor Ratev ariance $59584 - $58520

4. Labor Efficiency Variance

Labor Ratev ariance $1064 Favorable

Labor EfficiencyVariance (Standar dhour for ActualOutput - Actual Hoursworked) x Standard Rate

Labor EfficiencyVariance = ((19900X.5) - 10640) X$5.6

Labor EfficiencyVariance (9950 – 10640) X$5.6

Labor EfficiencyVariance = -690X$5.6

Labor EfficiencyVariance $3864Un favorable

Note: .5 denotes that a unit takes half an hour (1/2) to make a unit

5. Variable overhead rate variance

Variableoverheadratev ariance (StandardVariableoverheadRateX Actual Hour) Actual variableoverheadcostincurred

Variableoverheadratev ariance = ($4.5 X 10640) – $53200

Variableoverheadratev ariance = $47880 – $53200

Variableoverheadratev ariance $5320Un favorable

Variable Overhead Efficiency Variance

VariableOverhead EfficiencyVariance (StandardHoursforactualoutput- Actual Hours) X StandardVariableoverheadrate

VariableOverheadEfficiencyVariance ((19900 X.5) – 10640) X$4.5

VariableOverheadEfficiencyVariance (9950 – 10640) X$4.5

VariableOverhead EfficiencyVariance = -690 X $4.5

VariableOverheadEfficiencyVariance $3105Un favorable

Thanks!

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