Erie Company manufactures a small mp3 player called the Jogging Mate. The compan
ID: 2521733 • Letter: E
Question
Erie Company manufactures a small mp3 player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate mp3 player are as follows Standard Rate per Hour $6.20 Standard Cost 2.79 Standard Hours 27 minutes During August, 9,570 hours of direct labor time were needed to make 19,600 units of the Jogging Mate. The direct labor cost totaled $57,420 for the month Required: 1. According to the standards, what direct labor cost should have been incurred to make 19,600 units of the Jogging Mate? By how much does this differ from the cost that was incurred? (Round Standard labor time per unit to 2 decimal places.) Number of units manufactured Standard labor time per unit Total standard hours of labor time allowed Standard direct labor rate per hour Total standard direct labor cost Actual direct labor cost Standard direct labor cost Total variance-unfavorable 2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). ) Labor rate variance Labor efficiency varianceExplanation / Answer
Solution:
Part 1 ---
Number of units manufactured
19600
Standard labor time per unit
0.45
Total standard hours of labor time allowed
8820
Standard direct labor rate per hour
$6.20
Total standard direct labor cost
$54,684
Actual direct labor cost
$57,420
Standard direct labor cost
$54,684
Total variance - unfavorable
$2,736
Part 2 –
Labor Rate Variance
Labor Rate Variance
Actual Hourly Rate (AHR) ($57,420 / 9570)
$6.00
Per Hour
Standard Hourly Rate (SHR)
$6.20
Per Hour
Variance or Difference in Rate
$0.20
Per Hour
x Actual Labor Hours worked
9570
Hours
Labor Rate Variance
$1,914
Favorable
Labor Efficiency Variance
Labor Quantity / Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production
19600
Units
x Allowed Standard Hours Per Unit (27 M / 60)
0.45
hours
Total Standard Hours Allowed for actual production (SHAP)
8820
hours
Actual Labor Hours Worked (AH)
9570
hours
Variance or Difference in Hours
750
hours
x Standard Hourly Rate (SHR)
$6.20
per hour
Labor Efficiency Variance
$4,650
Unfavorable
Part 3 –
Variable Overhead Rate Variance = Actual Hours x Actual Rate – Actual Hours x Std Rate
= $49,764 – (9570*$4.50)
= $6,699 Unfavorable
Variable Overhead Efficiency Variance = Std Rate (Actual Hours – Std Hours allowed for actual production)
= $4.50 (9570 – 8,820)
= $4.50 * 750
= $3,375 Unfavorable
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Number of units manufactured
19600
Standard labor time per unit
0.45
Total standard hours of labor time allowed
8820
Standard direct labor rate per hour
$6.20
Total standard direct labor cost
$54,684
Actual direct labor cost
$57,420
Standard direct labor cost
$54,684
Total variance - unfavorable
$2,736
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.