Hollowell Audio, Inc. , manufactures military-specification compact discs. The c

Question

Hollowell Audio, Inc. , manufactures military-specification compact discs. The company uses standards to control its costs. The labor standards that have been set for one disc are as follows: STANDARD HRS = 24 MIN STANDARD RATE PER HR = $ 6.00 STANDARD COST = $2.40 _______________ During July, 2,125 hours of direct labor time were recorded to make 20,000 discs. The direct labor cost totaled $49,300 for the month. 1a. According to the standards, what direct labor cost should have been incurred to make the 20,000 discs? Total standard DL cost= $48000 1b. By how much does this differ from the cost that was incurred? Spending variance= $1300 U 2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance Labor rate variance= ??? Labor efficency variace= ??? 3.The budgeted variable manufacturing overhead rate is $16.00 per direct labor-hour. During July, the company incurred $39,100 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. Variable overhead rate variance= ??? Variable overhead efficiency variance= ???

Explanation / Answer

Labor Rate Variance = AH (AR SR) 8,500 hours ($5.80 per hour* $6.00 per hour) = $1,700 F *$49,300/ 8,500 hours = $5.80 per hour

Labor Efficiency Variance = SR (AH SH) $6 per hour (8,500 hours 8,000 hours) = $3,000 U

Actual Hours of Input, at the Actual Rate (AH AR) $39,100

Actual Hours of Input, at the Standard Rate (AH SR) 8,500 hours $4 per hour = $34,000

Standard Hours Allowed for Output, at the Standard Rate (SH SR) 8,000 hours $4 per hour = $32,000

Spending Variance, $5,100 U Efficiency Variance, $2,000 U

Total Variance, $7,100 U

Variable Overhead Spending Variance = AH (AR SR) 8,500 hours ($4.60 per hour* $4.00 per hour) = $5,100 U *$39,100 8,500 hours = $4.60 per hour Variable

Overhead Efficiency Variance = SR (AH SH) $4 per hour (8,500 hours 8,000 hours) = $2,000 U

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