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
30 minutes	$6.00	$3.00

During August, 10,560 hours of direct labor time were needed to make 19,800 units of the Jogging Mate. The direct labor cost totaled $61,248 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,800 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,800 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 $52,800 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 time allowed per unit = 30min/60 = 0.5 hours

Standard hours allowed for 19,800 mats, SH = 19,800 x 0.5 = 9,900 hours

2.

Standard labor cost allowed for 19,800 mats, SH x SR = 9,900 x $ 6 = $ 59,400

3.

Labor spending variance = Actual labor cost – standard labor cost allowed

                                   = $ 61,248 - $ 59,400 = $ 1,848    U

4.

Actual labor rate = Total labor cost incurred / no. of labor hours spend

                              = $ 61,248/10,560 = $ 5.80 PLH

Labor rate Variance = (Actual rate – Standard rate) x Actual direct labor hours

                             = ($ 5.80 - $ 6.00) x 10,560 = - $ 0.2 x 10,560 = - $ 2,112   F

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

                                     = (10,560 - 9,900) x $ 6 = 660 x $ 6 = $ 3,960     U

5.

Actual overhead rate = Total overhead cost incurred / no. of labor hours spend

                                    = $ 52,800/10,560 = $ 5 PLH

Variable overhead rate variance = (Actual rate - Standard rate) x Actual unit of allocation base

                                             = ($ 5 - $ 4.30) x 10,560 = $ 0.7 x 10,560 = $ 7,392    U

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

                                                     = (10,560 - 9,900) x $ 4.30 = 660 x $ 4.30 = $ 2,838    U