Question

Affordable Electronics Inc. manufactures medium-quality, reasonably priced wireless speakers for home use. The company uses standards to control its costs. The labour standards that have been set for one speaker are as follows:

Standard Hours	Standard Rate per Hour	Standard Cost
18 minutes (0.30 hours)	$10.00	$3.00

During July, 6,550 hours of direct labour time were recorded to make 21,000 units. The direct labour cost totalled $69,430 for the month.

Required:

1-a. What direct labour cost should have been incurred to make the 21,000 speakers? (Do not round intermediate calculations.)

1-b. By how much does direct labour cost differ from the cost that was incurred? (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2. Break down the difference in cost from requirement 1-b above into a labour rate variance and a labour efficiency variance. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

3. The budgeted variable manufacturing overhead rate is $4.00 per direct labour-hour. During July, the company incurred $27,510 in variable manufacturing overhead cost. Compute the variable overhead spending and efficiency variances for the month. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

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Answer 1

1a)	Direct labor cost allowed for actual production
	=21000 units *3 per unit
	=$63000
1b)	Cost incurred		$         69,430
	Less: Cost allowed		$         63,000
	Difference		$           6,430
2)	Direct Labor Rate Varaince = Actual Hours * (Standard Rate Per Hour - Actual Rate Per Hour)
		= 6550 Hours*($10 per hour-$10.6 per hour)
		=$3930 (Unfavorable)
	Direct Labor Efficiency Varaince = Standard Rate Per Hour * (Standard Hours For Actual Units Produced - Actual Hours)
		= $10 Per Hour ([21000Units*0.3 Hours Per Unit] - [21000 Units *0.311904761904762 Hours Per Unit])
		=$2500 (Unfavorable)
3)	Variable Overheads Spending Varaince = Actual Hours * (Standard Rate Per Hour - Actual Rate Per Hour)
		= 6550 Hours*($4 per hour-$4.2 per hour)
		=$1310 (Unfavorable)
	Variable Overheads Efficiency Variance = Standard Rate Per Hour * (Standard Hours For Actual Units Produced - Actual Hours)
		= $4 Per Hour ([21000Units*0.3 Hours Per Unit] - [21000 Units *0.311904761904762 Hours Per Unit])
		=$1000 (Unfavorable)