Erie Company manufactures a mobile fitness device called the Jogging Mate. The c
ID: 2588582 • Letter: E
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, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled $102,350 for the month.
Required:
1. What is the standard labor-hours allowed (SH) to makes 20,000 Jogging Mates?
2. What is the standard labor cost allowed (SH × SR) to make 20,000 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 per direct labor-hour. During August, the company incurred $21,850 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.)
StandardHours Standard Rate
per Hour Standard
Cost 18 minutes $17.00 $5.10
Explanation / Answer
Answer:- Answer:- 1)-The standard labor-hours allowed (SH) to makes 20,000 Jogging Mates is:-
Standard hours = Standard hours per unit*Actual units
=(18 minutes per unit*20000 units)/60 minutes
= 6000 hours
2)-The standard labor cost allowed to make 20,000 Jogging Mates is:-
Standard labor cost = Standard hour*Standard rate
=6000 hours*$17 per hour
= $102000
3)-labor spending variance =(Standard rate – Actual rate) * Actual hours
= ($17.00 per hour - $17.80 per hour)*5750 hours
= $4600 Unfavourable
4)- Direct Labor rate variance = (Standard rate – Actual rate) * Actual hours
= ($17.00 per hour - $17.80 per hour)*5750 hours
= $4600 Unfavourable
Direct Labor Efficiency variance=(Standard hours-Actual hours)*Standard rate per hour
=(6000 hours – 5750 hours)*$17.00 per hour
= $4250 Favourable
Where:-3
Actual rate = Actual cost /Actual labor hours
=$102350/5750 hours = $17.8 per hour
5)- Variable overhead efficiency variance=(Standard hours–Actual working hours)*Standard Rate
= ($6000 hours - $5462.50 hours)*$4.00 per hour
= $2150 Favourable
Variable overhead rate variance = (Standard rate –Actual rate)*Actual working hours
= None effect (Zero variance)
Variable overhead cost variance = Standard cost – Actual cost
= (6000 hours*$4 per hour)-$21850
=$24000-$21850
=$2150 Favourable
Variable overhead cost variance= Variable overhead rate variance+ Variable overhead efficiency variance
$2150 Favourable = Zero variance +=$2150 Favourable
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