Question

Erie Company manufactures a mobile fitness device called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate are as follows: Standard Hours Standard Rate per Hour Standard Cost 27 minutes $6.20 $2.79 During August, 9,180 hours of direct labor time were needed to make 19,000 units of the Jogging Mate. The direct labor cost totaled $55,998 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19,000 Jogging Mates? 2. What is the standard labor cost allowed (SH × SR) to make 19,000 Jogging Mates? 3. What is the labor spending variance? 4. What is the labor rate variance and the labor efficiency variance? 5. The budgeted variable manufacturing overhead rate is $4.50 per direct labor-hour. During August, the company incurred $45,900 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

Answer 1

Erie company
Number of units manufactured	19000
Standard DLH per unit	0.45	( 27/60)
Total DLH allowed	8550	Answer 1
Standard rate per DLH	6.2
Total standard cost	53010	Answer 2
Actual cost incurred	55998
Total standard cost	53010
Total variance— unfavorable	-2988	Answer 3
Answer 4
LRV = ( SR - AR ) * AH
( 6.2 - 6.1 ) * 9180 = 918 ( F )	( AR = 55998 / 9180 )
LEV = ( SH - AH ) * SR
( 8550 - 9180 ) * 6.2= 3906 ( U )
Answer 5
VOHRV = ( SR - AR ) * AH
( 4.5 - 5 ) * 9180 = 4590 ( U )	( AR = 45900 / 9180 )
LEV = ( SH - AH ) * SR
( 8550 - 9180 ) * 4.5= 2835 ( U )