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
27 minutes	$6.00	$2.70

During August, 9,515 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $55,187 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,700 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,700 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 $4.10 per direct labor-hour. During August, the company incurred $45,672 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 sheet is drawn here Garrison 16e Rechecks 2017-10-19 Next Visit question map Question 1 of 7 Total 1 of 7 Prev

Answer 1

Answer 1.

Standard labor-hours allowed = Standard hours required per unit * Number of units
Standard labor-hours allowed = 27/60 * 19,700
Standard labor-hours allowed = 8,865

Answer 2.

Standard labor cost allowed = Standard labor-hours allowed * Standard Rate per hour
Standard labor cost allowed = 8,865 * $6.00
Standard labor cost allowed = $53,190

Answer 3.

Labor Spending Variance = Actual labor cost - Standard labor cost allowed
Labor Spending Variance = $55,187 - $53,190
Labor Spending Variance = $1,997 Unfavorable

Answer 4.

Labor Rate Variance = Actual labor cost - Actual direct labor hours * Standard labor rate per hour
Labor Rate Variance = $55,187 - 9,515 * $6.00
Labor Rate Variance = $1,903 Favorable

Labor Efficiency Variance = Actual direct labor hours * Standard labor rate per hour - Standard labor cost allowed
Labor Efficiency Variance = 9,515 * $6.00 - $53,190
Labor Efficiency Variance = $3,900 Unfavorable

Answer 5.

Standard Variable Overhead cost allowed = Standard Variable Overhead rate per hour * Standard labor-hours allowed
Standard Variable Overhead cost allowed = $4.10 * 8,865
Standard Variable Overhead cost allowed = $36,346.50

Variable Overhead Rate Variance = Actual Variable Overhead cost - Actual direct labor hours * Standard Variable Overhead rate per hour
Variable Overhead Rate Variance = $45,672 - 9,515 * $4.10
Variable Overhead Rate Variance = $6,660.50 Unfavorable

Variable Overhead Efficiency Variance = Actual direct labor hours * Standard Variable Overhead rate per hour - Standard Variable Overhead cost allowed
Variable Overhead Efficiency Variance = 9,515 * $4.10 - $36,346.50
Variable Overhead Efficiency Variance = $2,665 Unfavorable