Exercise 8-11 Working Backwards from Labor Variances [LO8-5] The auto repair sho
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Question
Exercise 8-11 Working Backwards from Labor Variances [LO8-5] The auto repair shop of Quality Motor Company uses standards to control the labor time and labor cost in the shop. The standard labor cost for a motor tune-up is given below: Job Motor tune-up Standard Hours Standard Rate Standard Cost 2.00 $6.40 $12.80 The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 210 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups: Labor rate variance Labor spending variance $940 F $620 F Required: 1. Determine the number of actual labor-hours spent on tune-ups during the week. Actual labor hours hours Determine the actual hourly rate of pay for tune-ups last week. (Round your answer to 2 decimal places.) 2. Actual hourly rate per hourExplanation / Answer
Labor spending variance = Actual labor cost - standard labor cost
Since it is favourable, it means the actual labour cost was lower than the standard cost.
Standard hours = Actual units x Standard hour per unit = 210 x 2 = 420 hours
Standard cost = 420 hours x 6.40 = $2,688
Actual cost is therefore = Standard Cost - Labour Spending variance = 2,688 - 620 = $2,068
Labor efficiency variance = $320 unfavourable as the toal variance is 620 favourable and the rate variance is 940 favourable, the balance is the efficiency variance which is 320 unfavourable.
Labor efficiency variance = (Standard hours - Actual hours) x Standard rate
Since it is unfavourable, it means actual hours are greater than standard hours.
-320 = (420 - Actual hours) x 6.4
Therefore, actual hours = 470 hours
2. Actual hourly pay
=Total actual cost/ Actual hours = 2,068/470 = $4.40
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