Question

Exercise 9-10 Direct Labor and Variable Manufacturing Overhead Variances [LO9-5, LO9-6]

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	$6.00	$3.00

During August, 10,380 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $60,204 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 $4.50 per direct labor-hour. During August, the company incurred $49,824 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

1)	Standard labor hours allowed
	Actual units *standard hours per unit
	19200*.5
	9600	hours
2)	Standard labor cost allowed
	9600 *6
	57600
3)	labor spending variance
	actual cost -standard labor cost allowed
	60,204   - 57600
	2604	U
4)	labor rate variance
	(actual rate- standard rate)*actual hours
	(60204 - 6*10380)
	2076	F
	labor Efficiency variance
	(actual hours - standard hours allowed)*standard rate
	(10,380 - 9600)*6
	4680	U
5)	variable overhead rate variance
	(actual rate- standard rate)*actual hours
	(49824 - 10380*4.5)
	3114	U
	labor Efficiency variance
	(actual hours - standard hours allowed)*standard rate
	(10,380 - 9600)*4.5
	3510	U