Erie Company manufactures a small mp3 player called the Jogging Mate. The compan

Question

Erie Company manufactures a small mp3 player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate mp3 player are as follows Standard Standard Rate Standard per Hour $5.60 Hours 24 minutes Cost $2.24 During August, 8,620 hours of direct labor time were needed to make 19,600 units of the Jogging Mate. The direct labor cost totaled $47,410 for the month. Required 1. According to the standards, what direct labor cost should have been incurred to make 19,600 units of the Jogging Mate? By how much does this differ from the cost that was incurred? (Round Standard labor time per unit to 2 decimal places.) 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 19,600 0.40 7,840 S 5.60 43,904 S 47,410 43,904 S 3,506 Actual direct labor cost Standard direct labor cost Total variance-unfavorable

Explanation / Answer

2.

Labor rate variance

(AH x AR) - (AH x SR) = $47410 - (8620 x $5.60) = $47410 - $48272 = $862 F

Labor efficiency variance

(AH x SR) - (SH x SR) = (8620 x $5.60) - (7840 x $5.60) = $48272 - $43904 = $4368U

3.

Variable overhead rate variance

(AH x AR) - (AH x SR) = $44824 - (8620 x $4.50) = $44824 - $38790 = $6034U

Variable overhead efficiency variance

(AH x SR) - (SH x SR) = (8620 x $4.50) - (7840 x $4.50) = $38790 - $35280 = $3510U

Labor rate variance $862 F Labor efficiency variance $4368 U

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