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:

	Standard Hours	Standard Rate	Standard Cost
Motor tune-up	2.50	$36.00	$90.00

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 56 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$	400	F
Labor spending variance	$	500	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

1.

Standard rate = $36 per hour

Standard time = 2.50 hours per tune up

Actual output = 56 tune ups

Standard time for actual output = Standard time x Actual output

= 2.50 x 56

= $140

Labor spending variance = Direct labor rate variance + Direct labor efficiency variance

- 500 = 400 + Direct labor efficiency variance

Direct labor efficiency variance = $900 U

Direct labor efficiency variance = Standard rate x (Standard time - Actual time)

- 900 = 36 x (140 - Actual time)

140 - Actual time = - 25

Actual time used = 165 hours

2.

Direct labor rate variance = Actual time x (Standard rate - Actual rate)

400 = 165 x (36 - Actual rate)

36 - Actual rate = 2.42

Actual rate = $33.58 per hour

Actual labor hours	165 hours
Actual rate	$33.58 per hour