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 30 minutes $5.80 $2.90 During August, 10,350 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $57,960 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 $4.30 per direct labor-hour. During August, the company incurred $49,680 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

4. Labor rate variance Labor efficiency variance

5. Variable overhead rate variance Variable overhead efficiency variance

Answer 1

Solution:

1.) The standard labor hours allowed (SH) to makes 19,200 jogging mates is 9,600 hrs.

Number of units manufactured (a)	19,200
Standard labor time per unit (30 minutes / 60 minutes per hour) (b)	0.5
Standard labor hours allowed (a) × (b)(19,200 × 0.5)	9,600

2.) The standard labor cost allowed (SH × SR) to make 19,200 jogging mates is $55,680.

Standard labor hours allowed (a)	9,600
Standard direct labor rate per hour (b)	$5.80
Standard labor cost allowed (a) × (b)(9,600 hrs × $5.80)	$55,680

3.) The labor spending variance is $2,280(U)

Actual direct labor cost (a)	$57,960
Standard labor cost allowed (b)	$55,680
Labor spending variance (a) - (b)	$2,280	U

4.) The labor rate variance and the labor efficiency variance is $2,070 and $4,350

Actual hours of input, at the actual rate (AH × AR)		Actual hours of input, at the standard rate (AH × SR)		Standard hours allowed for output, at the standard rate (SH × SR)
$57,960		(10,350 he's. × $5.80 per hour) =$60,030		(9,600 hrs. × $5.80 per hour) =$55,680
	Labor rate variance ($60,030 - $57,960) $2,070 (F)		Labor efficiency variance ($60,030 - $55,680) $4,350 (U)
		Spending variance.($4,350 - $2,070) $2,280 U

*19,200 units × 0.50 hours per unit =9,600 hrs.

5.)

Actual hours of input, at the actual rate (AH ×AR)		Actual hours of input, at the standard rate (AH × SR)		Standard hours allowed for output at the standard rate (SH × SR)
$49,680		(10,350 hrs. ×$4.30 per hour) =$44,505		(9600 hrs. × $4.30 per hour) =$41,280
	Variable overhead rate variance($49,680 - $44,505) =$5,175(U)		Variable overhead efficiency variance ($44,505-$41,280) $3,225(U)
		Spending variance ($5,175+$3,225)=$8,400