Question

The auto repair shop of Quality Motor Company uses standards to control the labor time and labor cost in the shop. The standard labor cost for a motor tune-up is given below: Job Motor tune-up Standard Hours 2.20 Standard Rate $5.50 Standard Cost $12.10 The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 130 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups: Labor rate variance Labor spending variance $ 265 $1,077 F U Required: 1. Determine the number of actual labor-hours spent on tune-ups during the week. Actual labor hours hours 2. Determine the actual hourly rate of pay for tune-ups last week. (Round your answer to 2 decimal places.) Actual hourly rate per hour

Answer 1

1.Actual labor hours (AH) :

Given,

Labor rate variance $265 F ; Standard Rate $5.50 per hour

Labor spending variance $1,077 U ; Standard hours 286 hours ( 130 jobs x 2.20 hours per job)

Efficiency variance (EV) = 265 F+1,077 U

Therefore EV is $1,342 U (Unfavorable variance means positive)

Efficiency variance (EV) = SR (AH-SH)

=>1,342 = 5.50 (AH-286)

=>1,342 = 5.50 x AH - 5.50 x 286

=>1,342 = 5.50 AH - 1,573

=>1,342 + 1,573 = 5.50 AH

=>AH = 2915/5.50

  =>AH = 530 hours.

2. Actual hourly rate (AR) :

Labor rate variance = AH (AR-SR)

=>265 F = 530 (AR-5.50)

=>265 F = 530 AR - 530 x 5.50

=>(265) = 530 AR - 2,915

=>530 AR = 2,915 - 265 ( Favorable variance means negative).

=>530 AR = 2,650

=>AR = 2,650/530

  => AR = $5 per hour.

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