Question

In: Finance

Erie Company manufactures a mobile fitness device called the Jogging Mate. The company uses standards to...

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
18 minutes $17.00 $5.10

During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled $102,350 for the month.

1.

Number of units manufactured...............................

Standard labor time per unit
(18 minutes ÷ 60 minutes per hour)...................

Total standard hours of labor time allowed.............

Standard direct labor rate per hour........................

Total standard direct labor cost..............................

Actual direct labor cost...........................................

Standard direct labor cost......................................

Total variance—unfavorable...................................

2.

Actual Hours of
Input, at the
Actual Rate


Actual Hours of Input, at the Standard Rate

Standard Hours Allowed for Output, at the
Standard Rate

(AH × AR)

(AH × SR)

(SH × SR)

Rate Variance,

Efficiency Variance,

Spending Variance,

         

     Alternatively, the variances can be computed using the formulas:

         Labor rate variance = AH (AR – SR)

         

            

         Labor efficiency variance = SR (AH – SH)

         

Exercise 10-4(continued)

3.

Actual Hours of
Input, at the
Actual Rate


Actual Hours of Input, at the Standard Rate

Standard Hours
Allowed for Output, at the Standard Rate

(AH × AR)

(AH × SR)

(SH × SR)

$21,850

Rate Variance,

Efficiency Variance,

Spending Variance,
$2,150 F

     Alternatively, the variances can be computed using the formulas:

         Variable overhead rate variance = AH (AR – SR)

         

         Variable overhead efficiency variance = SR (AH – SH)

         

Solutions

Expert Solution

Statement showing computations
Particulars Amount
No of units manufactured             20,000.00
Standard Labour hour per unit = 18/60                        0.30
Total standard hours of labor time allowed               6,000.00
Standard direct labor rate per hour.                     17.00
Total standard direct labor cost.           102,000.00
Actual direct labor cost..           102,350.00
Standard direct labor cost           102,000.00
Total variance—unfavorable                 (350.00)
Particulars Standard Actual
Hours Rate amount Hours Rate amount
Labour               6,000.00                     17.00           102,000.00               5,750.00                 17.8000           102,350.00
DLRV= (SR-AR)AH
DLRV= (17 - 17.80)5750
DLRV= 4,600 U
DLEV = (SH-AH)SR
DLEV = (6000 - 5750) 17
DLEV = 4,250 F
Spending Variance, = 102,000 - 102350
Spending Variance, = 350 U

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