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	$6.20	$2.79

During August, 9,430 hours of direct labor time were needed to make 19,600 units of the Jogging Mate. The direct labor cost totaled $56,580 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,600 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,600 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 $47,150 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Answer 1

• [1] SH allowed = 19600 units x 27 min / 60 min = 8820 hours
• [2] Standard labor cost allowed = 8820 hours x $ 6.20 = $ 54,684
• [3]

Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                      54,684.00	-	$            56,580.00	)
	-1896
	Variance		$              1,896.00			Unfavourable-U

• [4]

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                6.20	-	$                       6.00	)	x	9430
	1886
	Variance		$              1,886.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8820	-	9430	)	x	$                           6.20
	-3782
	Variance		$              3,782.00			Unfavourable-U

• [5]

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                4.30	-	$                       5.00	)	x	9430
	-6601
	Variance		$              6,601.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8820	-	9430	)	x	$                           4.30
	-2623
	Variance		$              2,623.00			Unfavourable-U