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, 8,550 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $49,590 for the month.
Required:
1. What is the standard labor-hours allowed (SH) to makes 19,700 Jogging Mates?
2. What is the standard labor cost allowed (SH × SR) to make 19,700 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 $4.70 per direct labor-hour. During August, the company incurred $44,460 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.)
| 1) | Standard labor hours allowed = 19700*24/60 = | 7880 | |
| 2) | Standard labor cost = 7880*$6 = | $ 47,280 | |
| 3) | Labor spending variance = 49590-47280 = | $ 2,310 | Unfavorable |
| 4) | Labor rate variance = Actual hours*(Actual rate-Standard rate) = 8550*(49590/8550-6.00) = | $ 1,710 | Favorable |
| Labor efficiency variance = Standard rate*(Actual hours-Standard hours) = 6.00*(8550-7880) = | $ 4,020 | Unfavorable | |
| 5) | VOH rate variance = Actual hours*(Actual VOH rate-Standard VOH rate) = 8550*(44460/8550-4.70) = | $ 4,275 | Unfavorable |
| VOH efficiency variance = Standard VOH rate*(Actual hours - Standard hours) = 4.7*(8550-7880) = | $ 3,149 | Unfavorable |
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