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

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:

   During July, 9,675 hours of direct labor time were required to make 19,900 discs. The direct labor cost totaled $54,180 for the month.

According to the standards, what direct labor cost should have been incurred to make the 19,900 discs?

1b.By how much does this differ from the cost that was incurred?

Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance.

The budgeted variable manufacturing overhead rate is $4.1 per direct labor-hour. During July, the company incurred $44,505 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Sonne Company produces a perfume called Whim. The direct materials and direct labor standards for one bottle of Whim are given below:

Compute the direct materials price and quantity variances for the month

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:

Explanation / Answer

1.)The direct labor cost that should have been incurred is $11,400, which is $100 less than the actual expense of $11,500. You calculate this simply by taking the number of meals (6,000) multiplied the amount of time in hours (0.2), then multiplied again by the standard rate ($9.50)

6,000 x 0.20 = 1,200 x $9.50 = $11,400

2.)The variance containes two components, an unfavorable rate variance, offset by a favorbale efficiency variance. The rate variance is calculated by comparing the actual amount paid to the actual hours at the standard rate.

$11,500 actual - (1,150 actual hours x $9.50 standard rate) = $575 labor rate variance

The efficiancy variance is calculated by comparing the labor cost at standard to the actual hours at the standard rate.

(1,150 actual hours x $9.50 standard rate) - $11,400 (answer 1) = ($475) efficiency variance.

Add the labor rate variance of $575 and the efficiency variance of ($475) and you get a total variance of $100 above the standard labor cost.

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