Erie Company manufactures a small mp3 player called the Jogging Mate. The compan
ID: 2588925 • 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:
During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled $73,600 for the month.
According to the standards, what direct labor cost should have been incurred to make 20,000 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.)
Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations.)
Labor rate variance ?
Labor efficiency variance ?
The budgeted variable manufacturing overhead rate is $4 per direct labor-hour. During August, the company incurred $21,850 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations.)
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:
Explanation / Answer
ANSWER:
1.
Number of units manufactured..........................
20,000
Standard labor time per unit..............................
X 0.3*
Total standard hours of labor time allowed...........
6,000
Standard direct labor rate per hour.....................
X $12
Total standard direct labor cost..........................
$72,000
*18 minutes ÷ 60 minutes per hour = 0.3 hours
Actual direct labor cost......................................
$73,600
Standard direct labor cost..................................
72,000
Total variance—unfavorable...............................
$ 1,600
2.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input, at the Standard Rate
Standard Hours Allowed for Actual Output, at the
Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
5,750 hours ×
$12.00 per hour
6,000 hours* ×
$12.00 per hour
$73,600
= $69,000
= $72,000
Rate Variance,
$4,600 U
Efficiency Variance,
$3,000 F
Total Variance,
$1,600 U
*20,000 units × 0.3 hours per unit = 6,000 hours
Alternative Solution:
Labor rate variance = AH (AR – SR)
5,750 hours ($12.80 per hour* – $12.00 per hour) = $4,600 U
*$73,600 ÷ 5,750 hours = $12.80 per hour
Labor efficiency variance = SR (AH – SH)
$12.00 per hour (5,750 hours – 6,000 hours) = $3,000 F
3.
Actual Hours of
Input, at the
Actual Rate
Actual Hours of Input, at the Standard Rate
Standard Hours
Allowed for Actual Output, at the Standard Rate
(AH × AR)
(AH × SR)
(SH × SR)
5,750 hours ×
$4.00 per hour
6,000 hours ×
$4.00 per hour
$21,850
= $23,000
= $24,000
Spending Variance,
$1,150 F
Efficiency Variance,
$1,000 F
Total Variance,
$2,150 F
Alternative Solution:
Variable overhead spending variance = AH (AR – SR)
5,750 hours ($3.80 per hour* – $4.00 per hour) = $1,150 F
*$21,850 ÷ 5,750 hours = $3.80 per hour
Variable overhead efficiency variance = SR (AH – SH)
$4.00 per hour (5,750 hours – 6,000 hours) = $1,000 F
1.
Number of units manufactured..........................
20,000
Standard labor time per unit..............................
X 0.3*
Total standard hours of labor time allowed...........
6,000
Standard direct labor rate per hour.....................
X $12
Total standard direct labor cost..........................
$72,000
*18 minutes ÷ 60 minutes per hour = 0.3 hours
Actual direct labor cost......................................
$73,600
Standard direct labor cost..................................
72,000
Total variance—unfavorable...............................
$ 1,600
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