The auto repair shop of Quality Motor Company uses standards to control the labo

Question

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 2.50 $4.50 $11.25 The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However the shop supervisor recalls that 160 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 47 U $362 U Required: 1. Determine the number of actual labor-hours spent on tune-ups during the week Actual labor hours hours 2. Determine the actual hourly rate of pay for tune-ups last week. (Round your answer to 2 decimal places.) Actual hourly rate per hour

Explanation / Answer

SOLUTION

(1) Labor Efficiency variance = Standard rate * (Actual hours - Standard hours)

(Labor spending variance - Labor rate variance) = (Standard rate * Actual hours ) - (Standard rate * Standard hours)

(362 - 47) = ($4.50 * Actual hours ) - (160 * 2.50)

315 U = ($4.50 * Actual hours ) - 360

($4.50 * Actual hours ) = 315 + 360

Actual hours = 675 / 4.50 = 150 hours

(2) Labor rate variance = Actual hours * (Actual rate - standard rate)

47 = 150 hours * (Actual rate - $4.50)

47 = 150 * Actual rate - 675

150 * Actual rate = 675 + 47

Actual rate = 722 / 150 = $4.82

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