Engines Done Right Co. is trying to establish the standard labor cost of a typic
ID: 2489919 • Letter: E
Question
Engines Done Right Co. is trying to establish the standard labor cost of a typical engine tune-up. The following data have been collected from time and motion studies conducted over the past month.
Actual time spent on the tune-up 1.0 hour
Hourly wage rate $16
Payroll taxes 10% of wage rate
Setup and downtime 10% of actual labor time
Cleanup and rest periods 20% of actual labor time
Fringe benefits 25% of wage rate
Instructions
(a) Determine the standard direct labor hours per tune-up
(b) Determine the standard direct labor hourly rate.
(c) Determine the standard direct labor cost per tune-up.
(d) If a tune-up took 1.5 hours at the standard hourly rate, what was the direct labor quantity variance?
Explanation / Answer
a.
Actual time spent on the tune-up
1
Hour
Setup and downtime
1 hour *10%
0.1
Hour
Cleanup and rest periods
1 hour *20%
0.2
Hour
Standard direct labor hours per tuneup
1.3
Hours
b.
Hourly wage rate
$ 16.00
Payroll taxes
$16 * 10%
$ 1.60
Fringe benefits
$16 * 25%
$ 4.00
Standard direct labor hourly rate
$ 21.60
c.
Standard direct labor cost per tuneup = Standard direct labor hours per tuneup * Standard direct labor hourly rate = 1.30 hours * $21.60 = $28.08 per tune up
d.
Direct labor quantity variance = (1.5 hours – 1.3 hours) * $21.60 = $4.32 U
Actual time spent on the tune-up
1
Hour
Setup and downtime
1 hour *10%
0.1
Hour
Cleanup and rest periods
1 hour *20%
0.2
Hour
Standard direct labor hours per tuneup
1.3
Hours
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