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:

Standard Hours	Standard Rate per Hour	Standard Cost
27 minutes	$5.40	$2.43

During August, 9,215 hours of direct labor time were needed to make 19,300 units of the Jogging Mate. The direct labor cost totaled $47,918 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,300 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,300 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 $44,232 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.)

Answer 1

Standard Hours = 27 minutes per unit

Standard Cost = $5.40 per hour

Actual labor hours = 9215

Actual Cost = $47918

Actual production = 19300 units

1. Standard labor Hours for actually produced = (19300*27 min) / 60 min = 8685 hours

2. Standard Labor Cost = 8685 * $5.40 = $46899

3. Labor Spending Variance = Standard Cost - Actual Cost

= $46899 - $47918 = $1019 Unfavorable

4. Labor Rate Variance = (Standard Rate - Actual Rate) Actual Hours

= ($5.40 - ($47918/9215)) * 9215

= (5.40 - 5.2) * 9215 = $1843 Favorable

Labor Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

= (8685 - 9215) * $5.40

= $2862 Unfavorable

5. Standard Rate of overhead = $4.10 per hour

Actual Overhead Rate = $44232/9215 = $4.80

Overhead Efficiency Variance = (Standard Hours - Actual Hours) * Standard Rate

= (8685 - 9215) * $4.10 = $2173 Unfavorable