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 24 minutes $ 6.00 $ 2.40 During August, 8,380 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $48,604 for the month. Required: 1. What is the standard labor-hours allowed (SH) to makes 19,500 Jogging Mates? 2. What is the standard labor cost allowed (SH × SR) to make 19,500 Jogging Mates? 3. What is the labor spending variance?
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 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 | |
|---|---|---|
| 24 minutes | $ 6.00 | $ 2.40 |
During August, 8,380 hours of direct labor time were needed to make 19,500 units of the Jogging Mate. The direct labor cost totaled $48,604 for the month.
Required:
1. What is the standard labor-hours allowed (SH) to makes 19,500 Jogging Mates?
2. What is the standard labor cost allowed (SH × SR) to make 19,500 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 $40,224 in variable
(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.)
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