Question

Exercise 10-4 Direct Labor and Varlable Manufacturing Overhead Variances (LO10-2, LO10-3] 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 per Hour $5.80 Standard Cost $2.32 During August, 8.570 hours of direct labor time were needed to make 19.600 units of the Jogging Mate. The direct labor cost totaled $47.992 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19.600 Jogging Mates? 2. What is the standard labor cost allowed (SH X SR) to make 19.600 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 $42.850 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 varlance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero varlance). 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 5. Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Solution

Standard labor hours Allowed	7840
Standard labor cost allowed	$        45,472.00
Labor Spending Variance	$          2,520.00	Unfavourable-U
Labor rate Variance	$          1,714.00	Favourable-F
Labor Efficiency variance	$          4,234.00	Unfavourable-U
Variable overhead Rate Variance	$          5,999.00	Unfavourable-U
Variable overhead Efficiency Variance	$          3,139.00	Unfavourable-U

Working

Standard DATA for		19600	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct labor	( 0.4 Hour x 19600 Units)=7840 Hour	$                   5.80	$            45,472.00
Variable Overhead	( 0.4 Hour x 19600 Units)=7840 Hour	$                   4.30	$            33,712.00

.

Actual DATA for		19600	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct labor	8570	$       5.60	$          47,992.00
Variable Overhead	8570	$       5.00	$          42,850.00

.

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    5.80	-	$                     5.60	)	x	8570
	1714
	Variance		$             1,714.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7840	-	8570	)	x	$              5.80
	-4234
	Variance		$             4,234.00			Unfavourable-U

.

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                    4.30	-	$                     5.00	)	x	8570
	$         (5,999.00)
	Variance		$             5,999.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7840	-	8570	)	x	$              4.30
	$         (3,139.00)
	Variance		$             3,139.00			Unfavourable-U