The auto repair shop of Empire Motor Sales uses standards to control labor time

Question

The auto repair shop of Empire Motor Sales uses standards to control labor time and labor cost in the shop. The standard time for a motor tune-up is 3.7 hours. The record showing time spent in the shop last week on tune-ups has been misplaced; however, the shop supervisor recalls that 50 tune-ups were completed during the week and the controller recalls that the labor rate variance on tune-ups was $87, favorable. The shop has a set standard labor rate of $9 per hour for tune-up work. The total labor variance for the week on tune-up work was $93, unfavorable. The actual hourly rate of pay for tune-up work last week was:

Explanation / Answer

Total Labor Variance = 93 Unfavorable

Labor rate variance = 87 Favaorable

Labor Efficiency Variance = 87+93 = $180 unfavorable.

Labor Efficiency variance = (Actual Quantity - Standard Quantity )*Standard rate

-$180 = (Actual - Standard) * $9

Actual - Standard = 180/9 = -20 hours

Hourly rate = 3.7

= -20/3.7 = -5.40 tune ups

Standard Quantity of tuneups = 50-5.40 = 44.60 tuneups.

Actual rate = $93/50 = 1.86

Actual rate = $9-$1.86 = $7.14.

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