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, 9,475 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $54,008 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 $4.70 per direct labor-hour. During August, the company incurred $53,060 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

DATA FOR LABOUR VARIANCE
SH	Standard Hours for Actual Output	[0.45 hrs x 19,700 Mates]	8,865
AH	Actual Hours for Actual Output	[Given]	9,475
SR	Standard Rate per Hour	[Given]	$5.80
AR	Actual Rate per Hour	[$54,008 / 9475 DLHrs]	$5.70
1)	Standard DLHours for 19,700 Jogging Mates	[0.45 hrs x 19,700 Mates]
		8,865 DLHrs
2)	Standard Labour Cost for 19,700 Mates	[SH x SR]
		[8,865 x $ 5.80]
		$51,417
3)	Labour Rate/Spending Variance	[SR - AR] x AH
		[$ 5.80 - $ 5.70] x 9,475
		$ 947 [Favourable]
4)	Labour Efficency Variance	[SH - AH] x SR
		[8,865 - 9,475] x $ 5.80
		$ 3,538 [Unfavourable]
	Total Labour Cost Variance	[SH x SR] - [AH x AR]
		[8,865 x $ 5.80] - [9,475 x $ 5.70]
		[$ 51,417 - $ 54,008]
		$ 2,591 [Unfavourable]
DATA FOR LABOUR VARIANCE
SH	Standard Hours for Actual Output	[0.45 hrs x 19,700 Mates]	8,865
AH	Actual Hours for Actual Output	[Given]	9,475
SR	Standard Rate per Hour	[Given]	$4.70
AR	Actual Rate per Hour	[$53,060 / 9,475 DLHrs]	$5.60
5)
a)	Variable OH Rate/Spending Variance	[SR - AR] x AH
		[$ 4.70 - $ 5.60] x 9,475
		$ 8,527.50 [Unfavourable]
b)	Variable OH Efficency Variance	[SH - AH] x SR
		[8,865 - 9,475] x $ 4.70
		$ 2,867 [Unfavourable]
c)	Total Variable OH Cost Variance	[SH x SR] - [AH x AR]
		[8,865 x $ 4.70] - [9,475 x $ 5.60]
		[$ 41,665.50 - $ 53,060]
		$ 11,394.50 [Unfavourable]