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# Exercise 10-4 Direct Labor and Variable Manufacturing Overhead Variances [LO10-2, LO10-3] Erie Company manufactures a small...

Exercise 10-4 Direct Labor and Variable Manufacturing Overhead Variances [LO10-2, LO10-3]

 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:
 Standard Hours Standard Rate per Hour Standard Cost 27 minutes \$6.20 \$2.79
 During August, 9,410 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled \$56,460 for the month.
 Required: 1. According to the standards, what direct labor cost should have been incurred to make 19,200 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.)

 2. 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.)

 3. The budgeted variable manufacturing overhead rate is \$4.3 per direct labor-hour. During August, the company incurred \$47,050 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 and round your final answers to nearest whole dollar.)

 1 Number of units manufactured 19200 Standard labor time per unit 0.45 Total standard hours of labor time allowed 8640 Standard direct labor rate per hour 6.20 Total Standard direct labor cost 53568 Actual direct labor cost 56460 Standard direct labor cost 53568 Total variance-unfavorable 2892 2 Labor rate variance 1882 F =56460-(9410*6.2) Labor efficiency variance 4774 U =6.2*(9410-8640) 3 Variable overhead rate variance 6587 U =47050-(9410*4.3) Variable overhead efficiency variance 3311 U =4.3*(9410-8640)

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