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	$6.00	$2.40

During August, 8,730 hours of direct labor time were needed to make 19,900 units of the Jogging Mate. The direct labor cost totaled $50,634 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,900 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,900 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 $43,650 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 (SH) to makes 19,900 Jogging Mates

Number of units = 19,900

Labor hour per unit [24 minutes/ 60 minutes per hour]=0.4 hour

Standard labor hours = 19,900*0.4 hour = 7,960 hours

(2) standard labor cost allowed (SH × SR) to make 19,900 Jogging Mates?

Standard rate = $6 per hour

Standard labor cost = $6*7960 hours

=$47,760

(3) labor spending variance

Actual labor cost-standard labor cost

=$50,634-$47,760

=$2,874 Unfavorable [ as the Actual cost is higher than standard allowed the variance is unfavorable]

(4) labor rate variance and the labor efficiency variance

Labor rate variance =(AH*AR)-(AH*SR)

$50,634-(8,730 hours*$6 per hour)

$50,634-$52,380

=$1,746 Favorable (As the actual rate is lower than standard , the variance is favorable)

Labor efficiency variance

(AH*SR)-(SH*SR)

(8730 hours*$6 per hour) - ($6 per hour*7,960 hours)

$52,380-$47,760

$4,620 unfavorable

5) Variable overhead rate variance

=(AH*AR) - (AH*SR)

=$43,650 - (8730 hours*$4.5)

=$4,365 Unfavorable

As the actual cost is higher than standard allowed, the variance is unfavorable

Variable overhead effeciency variance =(AH*SR)- (SH*SR)

=(8,730 *$4.5)- (7,960*$4.5)

=$39,285-$35,820

=$3,465 unfavorable