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:

Standard Hours	Standard Rate per Hour	Standard Cost
24 minutes	$6.00	$2.40

During August, 8,230 hours of direct labor time were needed to make 19,100 units of the Jogging Mate. The direct labor cost totaled $47,734 for the month.

Required:
1.	According to the standards, what direct labor cost should have been incurred to make 19,100 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 $4.5 per direct labor-hour. During August, the company incurred $41,150 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.)

      

Answer 1

1) Schedule

No of unit manufactured	19100
Standard hour per unit (24/60)	0.40
Standard production hour	7640
Standard rate per hour	6
Total standard cost	45840
Actual Cost incurred	47734
Total standard cost	45840
total labor variance	1894 U

2) Labor rate variance = (6*8230-47734) = 1646 F

Labor efficiency variance = (7640-8230)*6 = 3540 U

3) Variable overhead rate variance = (4.5*8230-41150) = 4115 U

Variable overhead efficiency variance = (7640-8230)*4.5 = 2655 U