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
24 minutes	$6.00	$2.40

During August, 8,470 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $49,973 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,500 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,500 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 $4.50 per direct labor-hour. During August, the company incurred $44,044 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Answer 1

Standard hours allowed = 19500*(24/60) = 7800

Standard cost allowed = 7800*6 = 46,800

Labor spending variance = 46800 - 49973 = 3173 Unfavorable

Labor Rate Variance = (SR-AR) * AH = (6 - 49973/8470)*8470 = 847 Favourable

Labor efficiency variance = (SH-AH) *SR = (7800-8470)*6 = 4020 Unfavorable

Variable overhead rate variance = (SR-AR) * AH = (4.50 - 44,044/8470) * 8470 = 5929 Unfavorable

Variable overhead efficiency variance = (SH-AH) * SR = (7800-8470)*4.50 = 3015 Unfavorable