The auto repair shop of Quality Motor Company uses standards to control the labo
ID: 2461615 • Letter: T
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 170 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. Marvel Parts. Inc., manufactures auto accessories. One of the company's products is a set of seat covers that can be adjusted to fit nearly any small car The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1.075 hours each month to produce 2.150 sets of covers. The standard costs associated with this level of production are: During August, the factory worked only 800 direct labor-hours and produced 2.500 sets of covers. The following actual costs were recorded during the month: At standard, each set of covers should require 3.00 yards of material. All of the materials purchased during the month were used in production. Required: 1. Compute the materials price and quantity variances for August. 2. Compute the labor rate and efficiency variances for August. 3. Compute the variable overhead rate and efficiency variances for August.Explanation / Answer
LABOUR SPENDING VARIANCE
= (ACTUAL HOURS * STANDARD RATE) - (STANDARD HOURS * STANDARD RATE)
-$669 = (ACTUAL HOURS * $5.50) - (306 * $5.50)
-$669 = (ACTUAL HOURS * $5.50) - $1683
(ACTUAL HOURS * $5.50) = $1014
ACTUAL HOUR = $1014 / $5.50
ACTUAL HOUR = 184.36 HOURS
LABOUR RATE VARIANCE
= (ACTUAL RATE - STANDARD RATE) * ACTUAL HOURS WORKED
$343 = (ACTUAL RATE - $5.50) * 184.36
(ACTUAL RATE - $5.50) = $1.86
ACTUAL RATE = $7.36
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MATERIAL PRICE VARIANCE
= (ACTUAL QUANTITY * ACTUAL PRICE) - (ACTUAL QUANTITY * STANDARD PRICE)
= (12500 * $4.7) - (12500 * $7.93)
= $58750 - $99125
= $40375 U
MATERIAL QUANTITY VARIANCE
= (STANDARD QUANTITY - ACTUAL QUANTITY) * STANDARD PRICE
= (7500 - 12500) * $7.93
= -5000 * $7.93
= $39650 U
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LABOUR RATE VARIANCE
= (ACTUAL HOURS * ACTUAL PRICE) - (ACTUAL HOURS * STANDARD PRICE)
= (800 * $16.25) - (800 * $10)
= $13000 - $8000
= $5000 F
LABOUR EFFICIENCY VARIANCE
= (STANDARD HOUR - ACTUAL HOUR ) * STANDARD RATE
= (1250 - 800) * $10
= 450 * $10
= $4500 F
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VARIABLE OVERHEAD RATE VARIANCE
= (STANDARD RATE - ACTUAL RATE) * ACTUAL HOUR
= ($5 - $8.75) * 800
= -$3.75 * 800
= $3000 U
VARIABLE OVERHEAD EFFICIENCY VARIANCE
= (STANDARD HOUR - ACTUAL HOUR ) * STANDARD RATE
= (1250 - 800) * $5
= 450 * $5
= $2250 F
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