In: Finance
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............................... |
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Standard labor time
per unit |
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Total standard hours of labor time allowed............. |
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Standard direct labor rate per hour........................ |
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Total standard direct labor cost.............................. |
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Actual direct labor cost........................................... |
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Standard direct labor cost...................................... |
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Total variance—unfavorable................................... |
2. |
Actual Hours of |
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Standard Hours Allowed for Output, at the |
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(AH × AR) |
(AH × SR) |
(SH × SR) |
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Rate Variance, |
Efficiency Variance, |
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Spending Variance, |
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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 |
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Standard Hours |
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(AH × AR) |
(AH × SR) |
(SH × SR) |
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$21,850 |
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Rate Variance, |
Efficiency Variance, |
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Spending Variance, |
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Alternatively, the variances can be computed using the formulas:
Variable overhead rate variance = AH (AR – SR)
Variable overhead efficiency variance = SR (AH – SH)
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 | ||||||