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	$5.60	$2.24

During August, 8,420 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $46,310 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,700 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,700 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 $4.10 per direct labor-hour. During August, the company incurred $37,048 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 = Actual number of units X standard hours per unit

Actual number of units = 19700 units

standard hours per unit = 24 minutes

Standard labor hours allowed = Actual number of units X standard hours per unit

                                            = 19700 X 24 minutes

                                            = 472800 minutes or 7880 Hours

2. Standard labor cost allowed = Standard labor hours allowed X standard rate per hour

Standard labor hours allowed = 472800 minutes or 7880 Hours

standard rate per hour = $ 5.60

                                     = 7880 Hours X $ 5.60

                                     = $ 44,128

3. Labor spending variance = Standard labor cost - Actual labor cost

Standard labor cost = $44,128. (as per answer no.2)

Actual labor cost = $46,310

                            = $44,128 - 46,310

                            = $ (2182) Unfavorable

4. Labor rate variance = (Standard rate - Actual rate) x Actual hours worked

     Actual rate = Direct labor cost / Direct labor hours = $46,310/8420 Hours = 5.50 Hours

     Standard rate = 5.60 per hour

Labor rate variance = (Standard rate - Actual rate) x Actual hours worked

                           =($ 5.60 - 5.50) X 8420 hours

                           = $842 Favorable.

Labor efficiency variance = (Standard hours - Actual hours) x Standard rate

Actual hours = 8420 hours

Standard hours = 7880 Hours

Standard rate = 5.60 per hour

                                   = (7880 - 8420) X 5.60 per hour

                                   = $3,024 Unfavorable

5. Variable overhead rate variance = Actual hours worked x (Standard overhead rate - Actual overhead rate)

Actual overhead rate = $37,048 / 8420 hours = $4.40

Standard overhead rate = $ 4.10 per hour

Actual hours worked = 8420 hours

Variable overhead rate variance = Actual hours worked x (Standard overhead rate - Actual overhead rate).

                                              = 8420 hours X ( 4.10 - 4.4)

                                              = 2526 Unfavorable

Variable overhead efficiency variance = Standard overhead rate x (Standard hours - Actual hours)

Standard overhead rate = $ 4.10 per hour , Actual hours = 8420 hours, Standard hours = 7880 Hours

Variable overhead efficiency variance = Standard overhead rate x (Standard hours - Actual hours)

                                                     = $4.10 X (7880- 8420)

                                                   = $2,214 Unfavorable