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:

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	$6.40	$2.88

During August, 9,480 hours of direct labor time were needed to make 19,400 units of the Jogging Mate. The direct labor cost totaled $59,724 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,400 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,400 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 $49,296 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

 

Explanation

1.

Number of units manufactured (a)	19,400
Standard labor time per unit (27 minutes ÷ 60 minutes per hour) (b)	0.45
Standard labor-hours allowed (a) × (b)	8,730

2.

Standard labor-hours allowed (a)		8,730
Standard direct labor rate per hour (b)	$	6.40
Standard labor cost allowed (a) × (b)	$	55,872

3.

Actual direct labor cost (a)	$	59,724
Standard labor cost allowed (b)	$	55,872
Labor spending variance (a) – (b)	$	3,852	U

4.

Actual Hours of Input, at the Actual Rate				Actual Hours of Input, at the Standard Rate			Standard Hours Allowed for Output, at the Standard Rate
(AH × AR)				(AH × SR)			(SH × SR)
				9,480 hours × $6.40 per hour			8,730 hours × $6.40 per hour
$59,724				= $60,672			= $55,872
	Labor rate variance, $948 F				Labor efficiency variance, $4,800 U
		Spending Variance, $3,852 U

*19,400 units × 0.45 hours per unit = 8,730 hours

5.

Actual Hours of Input, at the Actual Rate				Actual Hours of Input, at the Standard Rate			Standard Hours Allowed for Output, at the Standard Rate
(AH × AR)				(AH × SR)			(SH × SR)
				9,480 hours × $4.50 per hour			8,730 hours × $4.50 per hour
= $49,296				= $42,660			= $39,285
	Variable overhead rate variance, $6,636 U				Variable overhead efficiency variance, $3,375 U
		Spending Variance, $10,011 U

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