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:

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	2.00	$6.40	$12.80

The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 210 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:

Labor rate variance	$	282	F
Labor spending variance	$	38	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.

Explanation

1.

If the labor spending variance is $38 unfavorable, and the labor rate variance is $282 favorable, then the labor efficiency variance must be $320 unfavorable, because the labor rate and labor efficiency variances taken together always equal the spending variance. Knowing that the labor efficiency variance is $320 unfavorable, one approach to the solution would be:

Labor efficiency variance = SR (AH – SH)

$6.40 per hour (AH – 420 hours*) = $320 U

$6.40 per hour × AH – $2,688 = $320**

$6.40 per hour × AH = $3,008

AH = $3,008 ÷ $6.40 per hour

AH = 470 hours

 *210 jobs × 2.00 hours per job = 420 hours

**When used with the formula, unfavorable variances are positive and favorable variances are negative.

2.

Labor rate variance = AH (AR – SR)

470 hours (AR – $6.40 per hour) = $282 F

470 hours × AR – $3,008 = –$282*

470 hours × AR = $2,726

AR = $2,726 ÷ 470 hours

AR = $5.80 per hour (rounded)

*When used with the formula, unfavorable variances are positive and favorable variances are negative.

Thanks