Exercise 8-10 Direct Labor and Variable Manufacturing Overhead Variances [LO8-5, LO8-6]

Erie Company manufactures a small mp3 player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate mp3 player are as follows:

Standard Hours	Standard Rate per Hour	Standard Cost
30 minutes	$5.40	$2.70

During August, 10,310 hours of direct labor time were needed to make 19,400 units of the Jogging Mate. The direct labor cost totaled $53,612 for the month.

Required:
1.	According to the standards, what direct labor cost should have been incurred to make 19,400 units of the Jogging Mate? By how much does this differ from the cost that was incurred? (Round Standard labor time per unit to 2 decimal places.)

Number of units manufactured	19,400
Standard labor time per unit	0.50
Total standard hours of labor time allowed	9,700
Standard direct labor rate per hour	$ 5.40
Total standard direct labor cost	$ 52,380
Actual direct labor cost	$ 53,612
Standard direct labor cost	52,380
Total varianceunfavorable	$ 1,232
sheet is drawn here

.	2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). )

Labor rate variance	$ (2,062)	F
Labor efficiency variance	$ 3,294	U
sheet is drawn here

3.

The budgeted variable manufacturing overhead rate is $4.7 per direct labor-hour. During August, the company incurred $55,674 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (Do not round intermediate calculations and round your final answers to nearest whole dollar. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Variable overhead rate variance
Variable overhead efficiency variance