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:

Job	Standard Hours	Standard Rate	Standard Cost
Motor tune-up	1.90	$6.60	$12.54

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 200 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

  Labor rate variance

$

784

F

  Labor spending variance

$

58

F

Required:

1.

Determine the number of actual labor-hours spent on tune-ups during the week.

Actual labor hours

hours

2.

Determine the actual hourly rate of pay for tune-ups last week. (Round your answer to 2 decimal places.)

Actual hourly rate

per hour

Answer 1

• Standard cost for 200 tune ups

(200 x 1.9)hours x $6.6
380   hours (SH) x $6.6 (SR) = $2,508 (Standard cost)

• Labor spending Variance = 58F
  this implies that Actual Labor cost is $58 less than Standard cost.

Hence, Actual Labor cost = $2508 – $58 = $2,450

• Labor Efficiency Variance + Labor rate Variance = Labor Spending Variance
  LEV + 784 = 58
  LEV = 58 – 784
  LEV = 726 Unfavourable
• LEV = (Standard hours – Actual Hours) x Standard rate
  -726 = (380 – Actual hours) x $6.6
  -726 = 2508 – 6.6AH
  6.6AH = 2508 + 726
  AH = 3234/6.6

AH(Actual Hours) = 490 hours [Answer to Requirement 1]

• Actual Labor cost = Actual Hours x Actual Rate
  $2,450 = 490 hours x Actual rate
  Actual Rate = 2450/490
  Actual Rate = $5 per hour [Answer to Requirement 2]