The auto repair shop of Quality Motor Company uses standards to control the labo

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: The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 160 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups: 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.

Explanation / Answer

     SRSH                               SRAH                                                 ARAH

   4.50 x 400 = 1,800

AR = Actual Rate per hour

SR = Standard Rate per hour

SH = Standard hours for actual production

AH = Actual Hours

Labor Rate Variance = SRAH – ARAH = - 495

Labor Spending Variance = SRSH – ARAH = - 720

SR = 5.50

SH = 2.50 x 160 = 400

SRSH = 400 x 4.50 = 1,800

SRAH = 1,800 + 720 = 2520

SRAH =2520

AH =2520/4.50 = 560

2.ARAH – 2520 + 495 = 3015

AR = 3015/560 = $ 5.38

Actual Hours : 560 hours

Actual Rate : $ 5.38

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