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	$5.80	$2.61

During August, 9,405 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $53,609 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 $4.50 per direct labor-hour. During August, the company incurred $45,144 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

		27/60=	0.45	hrs
	1)	Standard labor hours allowed
		Actual units *standard hours per unit
		19500*.45
		8775	hours
	2)	Standard labor cost allowed
		8775*5.80
		50895
	3)	labor spending variance
		actual cost -standard labor cost allowed
		53,609 - 50895
		2714	U
	4)	labor rate variance
		(actual rate- standard rate)*actual hours
		(53609 - 9405*5.80
		940	F
		labor Efficiency variance
		(actual hours - standard hours allowed)*standard rate
		(9405 - 8775)*5.80
		3654	U
	5)	variable overhead rate variance
		(actual rate- standard rate)*actual hours
		(45,144 - 4.50*9405)
		2821.5	U
		labor Efficiency variance
		(actual hours - standard hours allowed)*standard rate
		(9405 - 8775)*4.5
		2830.5	U
		if required round the final answers