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, 9,370 hours of direct labor time were needed to make 19,200 units of the Jogging Mate. The direct labor cost totaled $48,724 for the month.

Required:

1. What is the standard labor-hours allowed (SH) to makes 19,200 Jogging Mates?

2. What is the standard labor cost allowed (SH × SR) to make 19,200 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 $4.30 per direct labor-hour. During August, the company incurred $44,976 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 hour allowed = 19200*27/60 = 8640 hour

2) Standard cost allowed = 8640*5.4 = 46656

3) Labour spending variance = 46656-48724 = 2068 U

4) Labour rate variance = (5.4*9370-48724) = 1874 F

Labour efficiency variance = (8640-9370)*5.4 = 3942 U

5) Variable rate variance = (4.3*9370-44976) = 4685 U

Variable overhead efficiency variance = (8640-9370)*4.3 = 3139 U

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