Erie Company manufactures a mobile fitness device called the Jogging Mate. The c
ID: 341460 • 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: Standard Standard Cost 85. 10 Standard Rate Hours 18 minutes per Hour $17.00 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 x 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.) 1. 2. 3. 4. Standard labor-hours allowed Standard labor cost allowed Labor spending variance Labor rate variance Labor efficiency variance Variable overhead rate variance Variable overhead efficiency variance 5.Explanation / Answer
Answer 1)
Standard Labour hours allowed = Number of units produced * Standard hour per unit
= 20000*18/60
= 6000 Hours
Answer 2)
Standard Labour Cost = Standard hour * Standard cost per hour
= 6000*17 = $102000
Answer 3)
Labour Spending Varinces = Standard Cost - actual cost
= 102000 - 102350 = $350 Adverse
Answer 4)
Actual rate per hour = Actual cost / Actual hour
= 102350/5750 = $17.80
Labour Rate Varinces = Actual Hour ( Standard Rate- Actual Rate)
= 5750 (17-17.80)
= 4600 Adverse
Labour Efficiency Varinces = Standard Rate (Standard Hour - Actual Hour)
= 17 (6000-5750)
= $4250 Favourable
Answer 5)
Actual Variable overhead rate = 21850/5750 =$3.80
Variable Overhead Rate Variance = Actual Hour ( Standard Rate - Actual Rate)
= 5750 (4-3.80) = $1150 Favourable
Variable overhead efficiency variance = Standard rate (Standard hour - Actual hour)
= 4 (6000-5750) = $1000 Favourable
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