Question

Exercise 9-11 Working Backwards from Labor Variances [LO9-5] 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 2.50 Standard Rate $31.00 Standard Cost $77.50 Motor tune-up The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 56 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 $ 146 F $ 102 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. (Round your answer to 2 decimal places.) hours 1. 2. Actual labor hours Actual hourly rate per hour

Answer 1

Ans. 1	Labor Spending variance = labor Rate variance + Labor Efficiency variance
	-$102 = $146 + Labor efficiency variance
	Labor efficiency variance = -$102 - $146
	Labor efficiency variance = -$248	(or $248 unfavorable)
	Standard hours = Actual activity * standard hours per unit of activity
	56 tune ups * 2.50 hours
	140 hours
	Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
	-$248 = (140 - Actual hours) * $31
	-$248 / 31 = 140 - Actual hours
	-8 = 140 - Actual hours
	Actual hours = 140 + 8
	Actual hours = 148
Ans. 2	Labor rate variance = (Standard rate * Actual hours) - Actual labor cost
	$146 = ($31 * 148) - Actual labor cost
	$146 = $4,588 - Actual labor cost
	Actual labor cost = $4,588 - $146
	Actual labor cost = $4,442
	Actual hourly rate =   Actual labor cost / Actual hours
	$4,442 / 148
	$30.01	per hour
	*If standard items (rate or hours) are higher than the actual then the variance would be favorable.
	*If standard items (rate or hours) are lower than the actual then the variance would be unfavorable.