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

12 minutes (0.2 hours) $15.00 $3.00

During July, 3,400 hours of direct labour time were recorded to make 16,000 units. The direct labour cost totalled $49,300 for the month.

Required:

1-a. What direct labour cost should have been incurred to make the 16,000 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 $15,640 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).)

Answer 1

1a) Standard labor cost = 16000*3 = 48000

1b) Schedule

Number of units make	16000
Labor hour per unit	0.20
Standard labor hour allowed	3200
Rate per hour	15
Standard labor cost	48000
Actual labor cost	49300
Labor spending variance	1300 U

3) Labor rate variance = (15*3400-49300) = 1700 F

Labor efficiency variance = (3200-3400)*15 = 3000 U

4) Variable overhead spending variance = (4*3400-15640) = 2040 U

Variable overhead efficiency variance = (3200-3400)*4 = 800 U