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	$35.00	$87.50

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 60 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$	50	F
Labor spending variance	$	55	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.)

Answer 1

1.
Standard rate = $35 per hour
Standard time = 2.50 hours per tune up
Actual output = 60 tune ups
Standard time for actual output = 60 x 2.50
= 150 hours
labor spending variance = Direct labor rate variance + Direct labor efficiency variance
- 55 = 50 + Direct labor efficiency variance
Direct labor efficiency variance = $105 U
Direct labor efficiency variance = Standard rate x (Standard time - Actual time)
- 105 = 35 x (150 - Actual time)

-105 = 5,250 - 35 x Actual time

Actual time used = 153 hours

the number of actual labor-hours spent on tune-ups during the week = 153 hours

2.
Direct labor rate variance = Actual time x (Standard rate - Actual rate)
50 = 153 x (35 - Actual rate)

50 = 5,355 - 153 x Actual rate

Actual rate = $34.67 per hour

the actual hourly rate of pay for tune-ups last week = $34.67