Question

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:

Standard Hours	Standard Rate per Hour	Standard Cost
30 minutes	$5.60	$2.80

During August, 10,150 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $54,810 for the month.

Required:

1. According to the standards, what direct labor cost should have been incurred to make 19,200 units of the Jogging Mate? By how much does this differ from the cost that was incurred? (Round Standard labor time per unit and Standard direct labor rate to 2 decimal places.)

2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations.)

3. The budgeted variable manufacturing overhead rate is $4.5 per direct labor-hour. During August, the company incurred $52,780 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations and round your final answers to nearest whole dollar.)

Answer 1

Number of units manufactured	19200
Standard direct labor time per unit	0.5
Total standard hours of labor time allowed	9600
Standard direct labor rate per hour	5.6
Total standard direct labor cost	53760
Actual direct labor cost	54810
Standard direct labor cost	53760
Total variance-Unfavorable	1050
2
Labor rate variance	2030 F	=54810-(10150*5.6)
Labor efficiency variance	3080 U	=5.6*(10150-9600)
3
Variable overhead rate variance	7105 U	=52780-(10150*4.5)
Variable overhead efficiency variance	2475 U	=4.5*(10150-9600)