Question

Erie Company manufactures a small mp3 player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate mp3 player are as follows:

Standard Hours	Standard Rate per Hour	Standard Cost
27 minutes	$6.00	$2.70

During August, 9,665 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $57,024 for the month.

Required:
1.	According to the standards, what direct labor cost should have been incurred to make 19,700 units of the Jogging Mate? By how much does this differ from the cost that was incurred? (Round Standard labor time per unit to 2 decimal places.)

      

2.	Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations.)

      

3.

The budgeted variable manufacturing overhead rate is $4.5 per direct labor-hour. During August, the company incurred $50,258 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations and round your final answers to nearest whole dollar.)

      

Answer 1

1)	what direct labor cost should have been incurred to make 19,700 units of the Jogging Mate	53190
	By how much does this differ from the cost that was incurred	3834
	Working note 1:
	Standard time	27 min
	Total units	19700
	Standard hours	8865	(19700*27/60)
	Standard cost per hr	6
	Standard cost	53190
2)
	Labour Rate Variance = (Standard Rate - Actual Rate) Actual Hrs Worked
	= (6 - 5.9)* 9665
	966	Favourable
	Labour Efficiency Variance = (Standard Hrs. - Actual Hrs) Standard Rate
	= (8865- 9665 )*6
	-4800	Unfavaotable
3)	Variable Overhead(OH) Rate Variance = (Standard Rate - Actual Rate ) Actual Machine Hrs Worked
	=(4.5 - 5.2) * 9665
	-6765.5	Unfavorable
	Variable OH Efficiency Variance = (Standard hrs. - Actual Hrs) Standard Rate
	= (8865- 9665)*4.5
	-3600	Unfav