ezto.mheducation.com Erie Company manufactures a small mp3 player called the Jog

Question

ezto.mheducation.com 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: Hours 18 minutes Standard Standard Rate Standard per Hour $12.00 Cost $3.60 During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled $73,600 for the month. Required: 1. According to the standards, what direct labor cost should have been incurred to make 20,000 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 Actual direct labor cost Standard direct labor cost Total variance-unfavorable 2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round intermediate calculations.) Labor rate variance Labor efficiency variance

Explanation / Answer

1) According to standard, what standard cost and differ from actual cost :

2) Break down : labour cost

Labour rate variance = (standard rate-actual rate)actual hours

                             = (12*5750-73600)

Labour rate variance = 4600 U

Labour efficiency variance = (standard hour-actual hours)standard rate

                                      = (6000-5750)12

Labour efficiency variance = 3000 F

3) Variable overhead variance

Variable overhead rate variance = (standard rate-actual rate)actual hours

                               = (4*5750-21850)

Variable overhead rate variance = 1150 F

Variable overhead efficiency variance = (standard hour-actual hours)standard rate

                                   = (6000-5750)4

Variable overhead efficiency variance = 1000 F

No of units manufactured 20000 units Labour time per unit 18/60 = 0.30 hr total standard hour of labour time allowed 6000 standard direct labour rate per hour 12 standard labour cost 72000 Actual labour cost 73600 Standard labour cost 72000 Total Labour variance- Unfavourable 1600

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