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 Hours Standard Rate per Hour Standard Cost 27 minutes $ 5.60 $ 2.52 During August, 9,505 hours of direct labor time were needed to make 19,700 units of the Jogging Mate. The direct labor cost totaled $52,278 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19,700 Jogging Mates? 2. What is the standard labor cost allowed (SH × SR) to make 19,700 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 $4.50 per direct labor-hour. During August, the company incurred $49,426 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.)

Answer 1

The standard labor hours allowed for 19,700 Jogging Mates is 8,865 hours, and the standard labor cost is $49,644. The labor spending variance is $2,634 unfavorable, with a labor rate variance of $950 favorable and a labor efficiency variance of $3,584 unfavorable. The variable overhead rate variance is $6,653.50 unfavorable, and the efficiency variance is $2,880 unfavorable for the month of August.

Step-by-step explanation:

The Erie Company uses standard costing to control its costs for manufacturing the Jogging Mate. To address these questions, we need to apply the concepts of standard costing, labor variance analysis, and overhead variance analysis.

Standard Labor-Hours Allowed (SH)

For each Jogging Mate, the standard is set for 27 minutes of labor time. Since there are 60 minutes in an hour, we convert the minutes to hours (27 minutes / 60 minutes per hour = 0.45 hours). To find the total standard hours for 19,700 units, we multiply the number of units by the standard hours per unit (19,700 units * 0.45 hours/unit = 8,865 standard hours allowed for producing 19,700 Jogging Mates).

Standard Labor Cost Allowed

The standard rate per hour is $5.60. Multiplying the standard hours by the standard rate gives us the standard labor cost (8,865 hours * $5.60/hour = $49,644 standard labor cost).

Labor Spending Variance

The actual labor cost was $52,278. To find the labor spending variance, we subtract the standard labor cost from the actual labor cost ($52,278 - $49,644 = $2,634 unfavorable variance).

Labor Rate and Efficiency Variances

The actual hours worked were 9,505 hours at the actual cost of $52,278. The standard rate is $5.60 per hour, which gives us an expected cost of $53,228 for the actual hours worked (9,505 hours * $5.60/hour). The actual cost was $52,278, so the labor rate variance is ($53,228 - $52,278 = $950 favorable variance). The labor efficiency variance is found by comparing the standard labor cost for the actual production with the allowed labor cost (8,865 hours * $5.60 - 9,505 hours * $5.60) which results in a $3,584 unfavorable variance.

Overhead Variance Analysis

The budgeted variable overhead rate is $4.50 per direct labor-hour. To find the overhead spending variance, subtract the budgeted cost from the actual variable manufacturing overhead cost ($42,772.50 budgeted - $49,426 actual = $6,653.50 unfavorable variance). The overhead efficiency variance is calculated by using the standard hours allowed and the budgeted rate (8,865 hours * $4.50 - 9,505 hours * $4.50 = $2,880 unfavorable variance).