Erie Company manufactures a mobile fitness device called a 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 18 minutes $17.00 $5.10 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: What is the standard labor-hours allowed (SH) to make 20,000 Jogging Mates? What is the standard labor cost allowed (SH x SR) to make 20,000 Jogging Mates? What is the labor spending variance? What is the labor rate variance and the labor efficiency variance? 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.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Erie Company manufactures a mobile fitness device called a 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
18 minutes $17.00 $5.10
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:
- What is the standard labor-hours allowed (SH) to make 20,000 Jogging Mates?
- What is the standard labor cost allowed (SH x SR) to make 20,000 Jogging Mates?
- What is the labor spending variance?
- What is the labor rate variance and the labor efficiency variance?
- 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.
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