Question

The auto repair shop of Quality Motor Company uses standards to control the labor time and labor cost in the shop. The standard labor cost for a motor tune-up is given below:

	Standard Hours	Standard Rate	Standard Cost
Motor tune-up	2.5	$25.00	$62.50

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 50 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$150 F
Labor spending variance	$200 U

Required:

1. Determine the number of actual labor-hours spent on tune-ups during the week.

2. Determine the actual hourly rate of pay for tune-ups last week. (Round your answer to the nearest cent.)

Answer 1

Ans. 1	Labor Spending variance = labor Rate variance + Labor Efficiency variance
	-$200 = $150 + Labor efficiency variance
	Labor efficiency variance = -$200 - $150
	Labor efficiency variance = -$350	(or $350 unfavorable)
	Standard hours = Actual activity * standard hours per unit of activity
	50 tune ups * 2.50 hours
	125 hours
	Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
	-$350 = (125 - Actual hours) * $25
	-$350 / $25   = 125 - Actual hours
	-14 = 125 - Actual hours
	Actual hours = 125 + 14
	Actual hours = 139
Ans. 2	Labor rate variance = (Standard rate * Actual hours) - Actual labor cost
	$150 = ($25 * 139) - Actual labor cost
	$150 = $3,475 - Actual labor cost
	Actual labor cost = $3,475 - $150
	Actual labor cost = $3,325
	Actual hourly rate =   Actual labor cost / Actual hours
	$3,325 / 139
	$23.92	per hour
	*If standard items (rate or hours) are higher than the actual then the variance would be favorable.
	*If standard items (rate or hours) are lower than the actual then the variance would be unfavorable.