Erie Company manufactures a mobile fitness device called the Jogging Mate. The c
ID: 2548550 • Letter: E
Question
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:
During August, 9,585 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $52,718 for the month.
Required:
1. What is the standard labor-hours allowed (SH) to makes 19,700 Jogging Mates?
2. What is the standard labor cost allowed (SH × SR) to make 19,700 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 $4.10 per direct labor-hour. During August, the company incurred $46,008 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.
StandardHours Standard Rate
per Hour Standard
Cost 27 minutes $5.60 $2.52
Explanation / Answer
Total labour hours 9585 hours one jogging mate Total labour cost 52718 $ SH 27 min Total JM Produced 19700 SR 5.60 $ SC 2.52 $ AR 5.50 $ 1 Standard Labour Hours SH 19700*27/60 = 8865 hours 2 Standar labour cost SH*SR 8865*5.6 = 49644 $ 3 Labour efficiency variance (AH-SH)*SR (9585-8865)*5.6 = 4032 $ 4 Labour rate variance (AR-SR)*AH (5.5-5.6)*9585 = -958 $ 5 Labour Spending Variance (Actual overhead-Budgeted overhead) (9585*5.6)-(8865*5.5) = 4918.038 $
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