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:

	Standard Hours	Standard Rate	Standard Cost
Motor tune-up	2.50	$25.00	$62.50

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 50 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$	150	F
Labor spending variance	$	200	U

Required:

1. Determine the number of actual labor-hours spent on tune-ups during the week.

2. Determine the actual hourly rate of pay for tune-ups last week.

Answer 1

Labor spending variance = (Standard hours for actual tune-ups - Actual hours) * Standard rate per hour
$200 U = (50 * 2.50 hours - Actual hours) * $25
$ 200 U = (125 hours - Actual hours) * $25
$ 200 U / $25 = (125 hours - Actual hours)
8 hours U = 125 hours - Actual hours
Actual hours = 125 hours + 8 hours = 133 hours

Labor rate variance = (Standard rate - Actual rate ) * Actual hours
$150 F = ($25 - Actual rate ) * 133 hours
$150 / 133 hours = ($25 - Actual rate )
$1.1278 = ($25 - Actual rate )
Actual rate = $25 - $1.1278 = $23.8722 or $23.87 rounded off.

a). Actual labor hours spent = 133 hours
b). Actual hourly rate = $23.87 per hour