3. value: 1.50 points Hollowell Audio, Inc., manufactures military-specification

ID: 2413004 • Letter: 3

Question

3. value: 1.50 points Hollowell Audio, Inc., manufactures military-specification compact discs. The company uses standards to control its costs. The labor standards that have been set for one disc are as follows: Standard Standard Rate Hours 30 minutes per Hour $6.00 Cost $3.00 During July, 10,310 hours of direct labor time were required to make 19,500 discs. The direct labor cost totaled $60,829 for the month. Required: 1. According to the standards, what direct labor cost should have been incurred to make the 19,500 discs? By how much does this differ from the cost that was incurred? (Do not round intermediate calculations.) Number of units manufactured Standard labor time per unit Total standard hours of labor time allowed Standard direct labor rate per hour Total standard direct labor cost Actual direct labor cost Standard direct labor cost Spending variance-Unfavorable 2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Do not round intermediate calculations, Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None for no effect (i.e., zero variance). ) Labor rate variance Labor efficiency variance

Explanation / Answer

Number of units manufactured

19,500

Standard labor time

30 minutes

Total standard labor time allowed (0.5 x 19,500)

9,750 hrs

x Standard direct labor rate per hour

$ 6

Total standard direct labor cost

$ 58,500

Actual direct labor cost

$ 60,829

Spending variance - Unfavorable

$ 2,329

Direct labor rate Variance = (Actual rate x Actual hours worked) - (Actual hrs x Standard rate)

= $ 60,829 – (10,310 x $ 6)

= $ 60,829 - $ 61,860 = - $ 1,031 F

Direct labor efficiency Variance = (Actual hours - Standard hours) x Standard rate

= (10,310 – 9,750) x $ 6 = 560 x $ 6 = $ 3,360 U

Labor rate variance

$1,031

Labor efficiency variance

$3,360