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
24 minutes	$6.00	$2.40

During August, 8,330 hours of direct labor time were needed to make 19,300 units of the Jogging Mate. The direct labor cost totaled $48,314 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,300 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,300 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 $43,316 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Answer 1

1)	Standard labor hours allowed
	Actual units *standard hours per unit
	19300*.4
	7720	hours
2)	Standard labor cost allowed
	7720*6
	46320
3)	labor spending variance
	actual cost -standard labor cost allowed
	48314-46320
	1994	U
4)	labor rate variance
	(actual rate- standard rate)*actual hours
	(48314-8330*6)
	1666	F
	labor Efficiency variance
	(actual hours - standard hours allowed)*standard rate
	(8330 -7720)*6
	3660	U
5)	variable overhead rate variance
	(actual rate- standard rate)*actual hours
	(43,316 - 8330*4.5)
	5831	U
	labor Efficiency variance
	(actual hours - standard hours allowed)*standard rate
	(8330-7720)*4.5
	2745	U