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, 9,150 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $54,900 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 $4.30 per direct labor-hour. During August, the company incurred $43,920 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Answer 1

• [1]

Standard hours allowed = 19200 units x (27 min / 60min) = 8640 hours

• [2]
  Standard cost allowed = 8640 hours x $ 6.20 = $ 53,568
• [3]

Labor Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$                            53,568.00	-	$            54,900.00	)
	-1332
	Variance		$              1,332.00			Unfavourable-U

• [4]

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                       6.20	-	$                       6.00	)	x	9150
	1830
	Variance		$              1,830.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8640	-	9150	)	x	$                           6.20
	-3162
	Variance		$              3,162.00			Unfavourable-U

• [5]

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                       4.30	-	$                       4.80	)	x	9150
	-4575
	Variance		$              4,575.00			Unfavourable-U
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	8640	-	9150	)	x	$                           4.30
	-2193
	Variance		$              2,193.00			Unfavourable-U