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, 8,310 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $45,705 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,200 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,200 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 $41,550 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.)

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, 8,310 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $45,705 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,200 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,200 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 $41,550 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.)

	1. Standard labor-hours allowed ------------------ 2. Standard labor cost allowed ------------------ 3. Labor spending variance Fav or Unfav 4. Labor rate variance Fav or Unfav Labor efficiency variance Fav or Unfav 5. Variable overhead rate variance Fav or Unfav Variable overhead efficiency variance    Fav or Unfav

Answer 1

1) Standard labor hours allowed = Actual number of units x Standard hours per unit
Standard labor hours allowed = 19200 x ( (24 minutes / 60 minutes))	7,680.00	Hours
2) Standard labor cost allowed = Standard labor hours allowed x Standard rate per hour
Standard labor cost allowed = 7680 x $5.60	$ 43,008.00
3) Labor spending variance = Standard labor cost - Actual labor cost
Labor spending variance = $43,008 - $45,705	$   2,697.00	U
4) Labor rate variance = (Standard rate - Actual rate) x  Actual hours worked
Actual rate = Direct labor cost / Direct labor hours
Actual rate = 45,705 / 8310	$          5.50
Labor Rate Variance = ($5.60 -$5.50) x 8310	$      831.00	F
Labor rate variance = (Standard hours - Actual hours) x Standard rate
Labor rate variance = (7680 - 8310) x $5.60	3,528.00	U
5)
Variable overhead rate variance = Actual hours worked x (Standard overhead rate - Actual overhead rate)
Actual overhead rate  = 41,550 /8310	$          5.00
Variable overhead rate variance =  8310  ($4.50 - $5)	$   4,155.00	U
Variable overhead efficiency variance = Standard overhead rate x  (Standard hours - Actual hours)
Variable overhead efficiency variance = $4.50 x (7680 - 8310)	$   2,835.00	U