Erie Company manufactures a mobile fitness device called the Jogging Mate. The c

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:

During August, 8,470 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $45,738 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,500 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,500 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 $4.70 per direct labor-hour. During August, the company incurred $44,044 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month.

(For requirements 3 through 5, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

Explanation / Answer

1) Standard labor hours allowed to make 19,500 Jogging Mates = 19,500*Std hour per Jogging Mate

= 19,500*(24 min/60 min) = 7,800 hrs

2) Standard labor cost allowed = Std hours allowed*Std rate per hour

= 7,800 hrs*$5.60 per hour = $43,680

3) Labor Spending Variance = Std labor cost allowed - Actual labor cost

= $43,680 - $45,738 = ($2,058) U

4) Labor Rate Variance = (Std rate - Actual rate)*Actual hours

Actual labor rate per hour = Actual labor cost/Actual hours needed

= $45,738/8,470 hrs = $5.40 per hour

Labor Rate Variance = ($5.60 - $5.40)*8,470 hrs = $1,694 F

Labor Efficiency Variance = (Std hrs - Actual hrs)*Std rate per hour

= (7,800 hrs - 8,470 hrs)*$5.60 per hour = ($3,752) U

5) Variable Overhead Rate Variance = (Std rate - Actual rate)*Actual hrs

Actual VOH rate per hour = Actual VOH cost/Actual hrs

= $44,044/8,470 hrs = $5.20 per hour

Variable Overhead Rate Variance = ($4.70 - $5.20)*8,470 hrs = ($4,235) U

Variable Overhead Efficiency Variance = (Std hrs - Actual hrs)*Std rate

= (7,800 hrs - 8,470 hrs)*$4.70 = ($3,149) U

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