Erie Company manufactures an MP3 player called the Jogging Mate. The company uses standards to control its costs. The labour and variable overhead standards that have been set for one Jogging Mate MP3 player are as follows:

Budgeted fixed overhead was estimated to be $31,500 per month. Fixed overhead cost is applied using direct labour-hours. During August, 5,750 hours of direct labour time was recorded in the manufacture of 20,000 units of the Jogging Mate. The direct labour cost totalled $73,600 for the month. Actual variable overhead and fixed overhead costs were $21,850 and $32,000, respectively.

Required:

1. What direct labour cost should have been incurred in the manufacture of the 20,000 units of the Jogging Mate? By how much does this differ from the cost that was incurred?

2. Break the difference in cost from part (1) into a labour rate variance and a labour efficiency variance.

3. Compute the variable overhead spending and efficiency variances for the month.

4. Suppose the static budget volume is 19,000 players?this is the denominator volume. Compute the volume variance for fixed overhead cost.

5. Ignore the data in part (4). Suppose that the static budget volume is also the normal volume and that the budgeted variable overhead cost in the static budget is $25,200. Given the standard cost card data in the question, calculate the under- or overapplied fixed overhead for August.

Transcribed Image Text:

Standard Rate per Standard Hours Standard Cost Hour 18 minutes Direct labour $12 $3.60 Variable overhead 18 minutes $1.20 $4