Question

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:

	Standard Hours	Standard Rate	Standard Cost
Motor tune-up	2.50	$36.00	$90.00

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 56 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$	400	F
Labor spending variance	$	500	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.)

1.	Actual labor hours		hours
2.	Actual hourly rate		per hour

Answer 1

a. Number of actual labor-hours spent on tune-ups during the week:

Labor efficiency variance = -500 -400 = 900 U or -900

Given Standard rate per hour = $36

Standard hours for 56 tune-ups = 56*2.50 = 140

Labor efficiency variance=Standard rate per hour * (Standard hours - Actual hours)

-900 = 36 * (140 - Actual hours)

-900/36 = 140 - Actual hours

-25 = 140 - Actual hours

Actual hours = 140 + 25

Actual Labor hours = 165 Hours

b. Actual hourly rate of pay for tune-ups last week:

Labor rate variance = Actual hours spent * (Standard rate - Actual rate)

Labor rate variance = $400 F

400 = 165 * (36 - Actual rate)

36 - Actual rate = 400 /165

36 - Actual rate = 2.42

Actual rate = 36 - 2.42

Actual Hourly rate Per hour = $33.58