Erie Company manufactures a mobile fitness device called the Jogging Mate. The c
ID: 2410657 • Letter: E
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:
During August, 8,470 hours of direct labor time were needed to make 19,900 units of the Jogging Mate. The direct labor cost totaled $49,973 for the month.
Required:
1. What is the standard labor-hours allowed (SH) to makes 19,900 Jogging Mates?
2. What is the standard labor cost allowed (SH × SR) to make 19,900 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 $4.70 per direct labor-hour. During August, the company incurred $44,044 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.
(For requirements 3 through 5, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)
StandardHours Standard Rate
per Hour Standard
Cost 24 minutes $6.00 $2.40
Explanation / Answer
Answers
Standard labor Hours allowed (SH) to make 19,900 units = (Standard hours for 1 units x 19,900 units) = (24minutes/60minutes) x 19,900
= 0.4 hours x 19,900
= 7,960 Standard labor hours allowed
Standard labor cost allowed = Standard hours allowed for 19900 units x Standard rate per hour.
= 7960 standard hours x $ 6 per hour = $ 47,760
Labor Spending variance = Difference between Standard labor cost and Actual Labor cost.
= $ 47,760 – $ 49,973
= $ 2,213 Unfavourable, because actual cost is MORE than Standard cost.
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 6.00
-
$ 5.90
)
x
8470
847
Variance
847
Favourable-F
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
7960
-
8470
)
x
$ 6.00
-3060
Variance
3060
Unfavourable-U
Variable Overhead Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 4.70
-
$ 5.20
)
x
8470
-4235
Variance
4235
Unfavourable-U
Variable Overhead Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
7960
-
8470
)
x
$ 4.70
-2397
Variance
2397
Unfavourable-U
1
Standard labor-hours allowed
7960
standard labor hours
2
Standard labor cost allowed
$ 47,760.00
3
Labor spending variance
$ 2,213.00
Unfavourable
4
Labor rate variance
$ 847.00
Favourable
Labor efficiency variance
$ 3,060.00
Unfavourable
5
Variable overhead rate variance
$ 4,235.00
Unfavourable
Variable overhead efficiency variance
$ 2,397.00
Unfavourable
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 6.00
-
$ 5.90
)
x
8470
847
Variance
847
Favourable-F
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
7960
-
8470
)
x
$ 6.00
-3060
Variance
3060
Unfavourable-U
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