Exercise 10-5 Working Backwards from Labor Variances [LO10-2] The auto repair sh

Question

Exercise 10-5 Working Backwards from Labor Variances [LO10-2] 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: StandardStandard RateStandard Cost Hours 1.58 Motor tune-up $6.20 $9.30 The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 230 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups Labor rate variance Labor spending variance S 424 F S 723 U 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

1) Calculate actual hours :

Actual cost = standard cost+unfavourable labour spending variance

                 = (230*9.30)+723

Actual cost = 2862

Labour rate variance = (Standard price-actual price)actual hours

                      424   = (6.20X-2862)

                    -6.20X   = -3286

       X(actual hours)    = 530 Hours

b) Actual rate = 2862/530 = $5.40 per hour

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