Question

The auto repair shop of Quality Motor Company uses standards to control the labor time and labor cost in the shop. The standard labor cost for a motor tune-up is given below:

	Standard Hours	Standard Rate	Standard Cost
Motor tune-up	3.00	$7.00	$21.00

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 250 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$	954	F
Labor spending variance	$	2,494	F

Required:

1. Determine the number of actual labor-hours spent on tune-ups during the week.

2. Determine the actual hourly rate of pay for tune-ups last week. (Round your answer to 2 decimal places.)

Answer 1

1. Since 250 tune ups were completed and one 1 tune up require 3 hours , thus standard hours = 250*3 = 750 hours.

Labour rate variance = $954 F and Labour Spending variance = $2494F given.

Since Labour spending variance = Labour rate variance + labour efficiency variance,

2494F = 954F + Labour efficiency variance

Labour efficiency variance = 2494F-954F = $1540F

Since Labour Efficiency variance = (Standard labour hours- Actual labour hours )* standard rate

1540 F = ( 750- Actual labour hours) * 7

1540 / 7 = 750 - Actual hours

Actual labour hours = 750 - 220

Actual labour hours = 530.

2. Labour rate varaince = ( Standard rate - Actual rate) * Actual labour hours

954 F = ( 7- Actual rate) * 530

954/530 = 7 - Actual rate

Actual rate = 7- 954/530

Actual rate = 7-1.8

Actual rate per hour = 5.2