The auto repair shop uses standards to control labor time and labor cost in the

Question

The auto repair shop uses standards to control labor time and labor cost in the shop. The standard time for a motor tune-up is 4.1 hours. The record showing time spent in the shop last week on tune-ups has been misplaced; however, the shop supervisor recalls that 70 tune-ups were completed during the week and the controller recalls that the labor rate variance on tune-ups was $89, favorable. The shop has a set standard labor rate of $8 per hour for tune-up work. The total labor variance for the week on tune-up work was $95, unfavorable.

The actual hourly rate of pay for tune-up work last week was which one?
$7.70 per hour $8.00 per hour $8.30 per hour or cannot be computed with the given information

Explanation / Answer

Total labor variance = Labor efficiency variance + Labor rate variance, so

Labor efficiency variance = Total labor variance – labor rate variance = 95 Unfavorable - 89 Favorable 184 Unfavorable.

Labor efficiency variance = Standard rate (Actual hours – Standard hours)

184 = 8 ( actual hours – 4.1*70)

184 = 8( actual hours – 287)

Actual hours = 310

Labor rate variance = Actual hours(Actual rate – Standard rate)

-89 = 310 (Actual rate – 8)

Actual rate = $7.71

Answer: $7.70

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