Exercise 10-4 Direct Labor and Variable Manufacturing Overhead Variances [L010-2
ID: 2414214 • Letter: E
Question
Exercise 10-4 Direct Labor and Variable Manufacturing Overhead Variances [L010-2, LO10-3) 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: lours 27 minutes tandard Standard Rate Standard per Bour $5.60 cost $2.52 During August, 9.510 hours of direct labor time were needed to make 19,800 units of the Jogging Mate. The direct labor cost totaled $51,354 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19,800 Jogging Mates? 2. What is the standard labor cost allowed (SH SR) to make 19,800 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 $43,746 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 varlance by selecting "F for favorable, "U" for unfavorable, and "None" for no effect (le., zero variance). Input all amounts as positive values. Do not round intermediate calculations) Standard labor-hours allowed 2. Standard labor cost allowed 3 Labor spending variance 4 Labor rate variance Variabie overhead rate variance Variable overhead efficiency variance 5.Explanation / Answer
1.Standard labour hours allowed 19800*27/60 =8910 hours
2.Standard labour cost allowed 8910*$5.6 =$49,896
3.Labour Spending variance (Standard cost-Actual cost) $49,896-$51,354=$1458U
4. a.Labour Rate variance (SR-AR)*AH $1902 F
=($5.6-$51354/9510)*9510
=($5.6-$5.4)*9510 = $1902F
b. Labour Efficiency Variance (SH-AH)*SR $3360 U
= (8910-9510)*$5.6
= $3360 U
5. Variable Overhead Expenditure Variance $2853 U
(Budgeted variable overhead for Actual hours-Actual variable overheads)
=($4.3*9510-$43746)= $2853 U
Variable overhead efficieny variance $18457.8 U
(Standard variable overheads for production-Budgeted Variable overheads for actual hours)
($2.52*8910-$4.3*9510)= $22435.2-$40893 = $ 18457.8 U
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