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	$6.40	$2.88

During August, 9,395 hours of direct labor time were needed to make 19,100 units of the Jogging Mate. The direct labor cost totaled $58,249 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,100 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,100 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 $45,096 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Answer 1

Answer
Solution 1:
Standard hours allowed to make 19,100 jogging mates = 19,100 units * 27 minutes / 60 minutes = 8,595 hours
Solution 2:
Standard labor cost allowed = Standard hours *SR = 8595 hours * $6.40 = $55,008
Solution 3:
Labor spending variance = Standard labor cost - Actual labor cost = $55,008 - $58,249 = $3,241 (unfavorable)
Solution 4:
Actual rate of labor = $58,249 / 9,395 hours = $6.20 per hour
Direct labor rate variance = (SR - AR) * AH = ($6.40 - $6.20) * $9,395 = $1,879 (Favorable)
Direct labor efficiency variance = (SH - AH) *SR = (8,595 - 9,395) * $6.40 = $5,120 (Unfavorable)
Solution 5:
Standard rate of variable overhead = $4.30 per hour
Actual rate of variable overhead = $45,096 / 9395 = $4.80 per hour
Variable overhead rate variance = (SR - AR)* AH = ($4.30 - $4.80) * 9,395 = $4697.5 (Unfavorable)
Variable overhead efficiency variance = (SH - AH) * SR = (8,595 - 9,395) * $4.30 = $3,440 (Unfavorable)
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