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:
During August, 9,555 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $56,375 for the month.
According to the standards, what direct labor cost should have been incurred to make 19,500 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.)
Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). )
1) According to the standards, what direct labor cost should have been incurred to make 19,500 units of the Jogging Mate? By how much does this differ from the cost that was incurred?
|Number of units manufactured||19500|
|Standard labor time per unit||27 min|
|Total standard hours of labor time allowed||8775|
|Standard direct labor rate per hour||6|
|Total standard direct labor cost||52650|
|Actual direct labor cost||56375|
|Standard direct labor cost||52650|
2) Labour rate variance = (6*9555-56375) = 955 F
Labour efficiency variance = (8775-9555)*6 = 4680 U
3) Variable overhead rate variance = (4.5*9555-47775) = 4777.50 U
Variable overhead efficiency variance = (8775-9555)*4.5 = 3510 U
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