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
24 minutes	$6.40	$2.56

During August, 8,490 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $52,638 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,500 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,500 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 $44,148 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 variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

Answer 1

1) standard labor-hours allowed (SH) to makes 19,500 Jogging Mates

= (24 mins per jogging mate x 19500 jogging mates) / (60 mins / hour)

= 7800 standard hours

2) standard labor cost allowed (SH × SR) to make 19,500 Jogging Mates

= Standard hours required to make 19500 jogging mates x Standard rate per hour

= 7800 hours x $ 6.40 per hour

= $ 49920

3) Labor spending variance

= Standard cost of labor for actual output - actual labor cost

= $ 49920 - $ 52638

= $ 2718 (Unfavorable)

4) labor rate variance

= (Actual labor Rate - Standard labor rate) x Actual Hours Worked

= ($6.20/hour - $6.40/hour) x 8490 Hours

= $1698 (Favorable)

Note : Actual Labor Rate = Actual Labor Cost / Actual labor hours = $52638 / 8490 Hours = $ .20 / Hour

Labor Efficiency variance

= (Actual Hours - Standard hours for actual output) x Standard labor rate

= (8490 Hours - 7800 Hours) x $6.40/ Hour

= $ 4416 (Unfavorable)

5) Variable Overhead Rate Variance

= (Actual Variable Overhead Rate - Standard Variable Overhead  rate) x Actual Hours Worked

= ($ 5.20 per hour - $ 4.30 per hour) x 8490 hours

= $ 7641 (Unfavorable)

Note: Actual variable overhead rate = actual variable overhead incurred / actual hours worked = $44148 / 8490 hours = $5.20 per hour

Variable Overhead Efficiency Variance

= (Actual Hours - Standard hours for actual output) x Standard overhead rate

= (8490 hours - 7800 hours) x $4.30 per hour

= $ 2967 (Unfavorable)