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:

Standard Hours Standard Rate Standard Cost
Motor tune-up 2.50 $35.00 $87.50
The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 60 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:
Labor rate variance $ 50 F
Labor spending variance $ 55 U
Required:
1. Determine the number of actual labor-hours spent on tune-ups during the week.
2. Determine the actual hourly rate of pay for tune-ups last week.

Answer 1

The actual labor hours spent on motor tune-ups were 151.57 hours, and the actual hourly rate of pay was $34.17 last week.

Step-by-step explanation:

The student asked about determining actual labor hours and the actual hourly rate of pay for motor tune-ups based on given standard costs and variance data. To find the actual labor hours spent on motor tune-ups, we need to adjust the standard labor costs by the labor spending variance. For the actual hourly rate of pay, we adjust the standard labor rate by the labor rate variance.

We start with the information that 60 tune-ups were completed with a standard cost of $87.50 per tune-up. This results in a total standard labor cost of 60 tune-ups x $87.50 = $5,250. Since the labor spending variance is unfavorable (U) at $55, the actual spent is more: $5,250 (standard) + $55 (variance) = $5,305 actual labor cost.

We compute the actual labor-hours by dividing the actual labor cost by the standard labor rate: $5,305 / $35.00 = 151.57 hours.

With a favorable (F) labor rate variance of $50, the actual rate is less than the standard rate of $35.00 per hour. To find the actual rate, we first calculate the actual hourly cost savings due to the variance: $50 / 60 tune-ups = $0.83 saved per tune-up. Subtracting from the standard rate gives us the actual rate: $35.00 - $0.83 = $34.17 per hour.

Answer 2

Actual Quantity= 151.57

Actual Rate= $3.17

Step-by-step explanation:

Giving the following information:

Standard Hours 2.50

Standard Rate $35.00

Standard Cost $87.50

Number of tune-ups= 60

Labor rate variance $ 50 F

Labor spending variance $ 55 U

First, we need to calculate the actual number of hours. We need to use the direct labor efficiency variance:

Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate

-55 = (60*2.5 - Actual Quantity)*35

-55 = 5,250 - 35Actual Quantity

35Actual Quantity = 5,305

Actual Quantity= 151.57

Now, the actual hourly rate. We need to use the direct labor rate variance formula:

Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity

50 = (3.5 - Actual Rate)*151.57

50= 530.5 - 151.57Actual Rate

151.57Actual Rate= 480.5

Actual Rate= $3.17