Question

4. 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: 24 minutes

Standard Rate per Hour: $5.80

Standard Cost: $2.32

During August, 8,390 hours of direct labor time were needed to make 19,400 units of the Jogging Mate. The direct labor cost totaled $46,984 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,400 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,400 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 $41,950 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 = 19400 x 24/60 = 7760 hours
• [2] Standard cost allowed = 7760 hours x $ 5.80 = $ 45,008
• [3]

Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                      45,008.00	-	$            46,984.00	)
	-1976
	Variance		$              1,976.00			Unfavourable-U

• [4]

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                5.80	-	$                       5.60	)	x	8390
	1678
	Variance		$              1,678.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7760	-	8390	)	x	$                           5.80
	-3654
	Variance		$              3,654.00			Unfavourable-U

• [5]

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                4.70	-	$                       5.00	)	x	8390
	-2517
	Variance		$              2,517.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	7760	-	8390	)	x	$                           4.70
	-2961
	Variance		$              2,961.00			Unfavourable-U