Erie Company manufactures a mobile fitness device called the Jogging Mate. The c

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, 8,670 hours of direct labor time were needed to make 19,800 units of the Jogging Mate. The direct labor cost totaled $46,818 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,800 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,800 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 $4.30 per direct labor-hour. During August, the company incurred $45,084 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

(For requirements 3 through 5, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

Explanation / Answer

1) Standard labour hour allowed = 19800*24/60 = 7920 hour

2) Standard cost allowed = 7920*5.6 = 44352

3) Labour cost variance = 44352-46818 = 2466 U

4) Labour rate variance = (5.6*8670-46818) = 1734 F

Labour efficiency variance = (7920-8670)*5.6 = 4200 U

5) Variable overhead rate variance = (4.3*8670-45084) = 7803 U

Variable overhead efficiency variance = (7920-8670)*4.3 = 3225 U

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