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	1.80	$5.50	$9.90

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 170 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$	517	F
Labor spending variance	$	385	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

• All working forms part of the answer
• Notes:

Standard hours = SH = 1.8 x 170 = 306
Standard rate = SR $ 5.5

Actual Hours = AH
Actual rate = AR

• Requirement 1: No. of AH

Labor Efficiency Variance (LEV) = Spending variance – rate variance

= -385 – 517 = $ 902 U

LEV = (SH – AH) x SR

-902 = (306 – AH) x 5.5
-902/5.5 = 306 – AH
-164 - 306 = -AH
AH = 164 + 306 = 470

Answer: No. of actual labor hours (AH) = “470 labor hours”

• Requirement 2

Labor Rate Variance = (SR – AR) x AH

517 = (5.5 – AR) x 470
517 = 2585 – 470AR
470AR = 2585 – 517
AR = 2068 / 470
AR = $ 4.40

Answer: Actual Hourly rate = “$ 4.40 per labor hours”