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 27 minutes $6.20 $2.79 During August, 9,580 hours of direct labor time were needed to make 19,600 units of the Jogging Mate. The direct labor cost totaled $57,480 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 × 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 $4.70 per direct labor-hour. During August, the company incurred $49,816 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Answer 1

Answers

• Answer #1

Standard labor hours allowed = Actual units x Standard time per unit

= 19600 units x 27 minutes
=529200 minutes

529200 minutes = 8,820 Hours [529200 / 60]

Answer: Standard hours allowed for 19600 units = 8,820 hours

• Answer #2

Standard labor cost allowed = Standard hours x Standard rate per hour

= 8820 hours (calculated above) x $ 6.20

= $ 54,684

Answer = $ 54,684

• Answer #3

Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$             54,684.00	-	$            57,480.00	)
	-2796
	Variance		$              2,796.00			Unfavourable-U = Answer

• Answer #4

Labor Rate Variance
(	Standard Rate	-	Actual Rate [$57480 / 9580 hours]	)	x	Actual Labor Hours
(	$                        6.20	-	$                       6.00	)	x	9580
	1916
	Variance		$              1,916.00			Favourable-F = Answer

Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8820	-	9580	)	x	$                           6.20
	-4712
	Variance		$              4,712.00			Unfavourable-U = Answer

• Answer #5

Variable Overhead Rate Variance
(	Standard Rate [given]	-	Actual Rate [$49816/9580 hours]	)	x	Actual Labor Hours
(	$                        4.70	-	$                       5.20	)	x	9580
	-4790
	Variance		$              4,790.00			Unfavourable-U = Answer

Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8820	-	9580	)	x	$                           4.70
	-3572
	Variance		$              3,572.00			Unfavourable-U = Answer