Exercise 10-5 Working Backwards from Labor Variances [L010-2] The auto repair sh

Question

Exercise 10-5 Working Backwards from Labor Variances [L010-2] 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: Standard Hours Standard Rate Standard Cost Motor tune-up 2.5 $25.00 $62.50 The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 50 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups: $150 F 200 U Labor rate variance Labor spending variance 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. (Round your answer to 2 decimal places.) Actual labor hours Actual hourly rate 1. hours 2. per hour

Explanation / Answer

Answer to Part 1.
Total Labor Variance = Labor Rate Variance + Labor Efficiency Variance
$200U = $150F + Labor Efficiency Variance
$200 = -$150 + Labor Efficiency Variance
Labor Efficiency Variance = $350
Efficiency Variance = SR * (AH – SH)
$350 = 25 * (AH – 2.5* 50)
350 = 25AH – 3,125
3,475 = 25AH
Actual Hour = 139 Hours
Answer to Part 2.
Labor Rate Variance = AH * (AR – SR)
-150 = 139 * (AR – 25)
-150 = 139 AR – 3,475
3,325 = 139 AR
AR = $23.92
Actual Hourly Rate = $23.92

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