Concept explainers
Direct Labor and Variable Manufacturing
Eric 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:
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 makes 20.000 Jogging Mates?
1
Standard labor hours
Standard hours represent the number of hours that should have been used by the labors during production in a particular accounting period.
To calculate:Standard labor hours that can be used to produce 20,000 units.
Answer to Problem 10E
Standard labor hours allowed to use for 20,000 units of given product are 6,000 hours.
Explanation of Solution
Standard hours allowed are determined by multiplying actual number of units that a company produce and standard hours available for each unit.
Here, number of units are given as 20,000 and standard time for one unit is 18 minutes. So thw standard hours allowed will be:
So, standard hours allowed are 6,000 hours.
2
Standard labor cost
Standard cost represents the amount of cost that should be incurred on labors during a period.
To calculate: Standard cost allowed for 20,000 units.
Answer to Problem 10E
Standard cost allowed for 20,000 units is $102,000.
Explanation of Solution
Allowed standard labor cost is calculated by the product of allowed standard labor hours and standard rate for one hour.
Here, allowed standard hours are 6,000 (calculated in sub part 1) and standard rate is $17 per hour. So, allowed standard labor cost will be:
Allowed standard labor cost is $102,000.
3
Spending variance
A spending variance represents the difference between actual amount of expense incurred and standard expense.
labor spending variance with the given figures.
Answer to Problem 10E
Labor spending variance is $350 unfavorable.
Explanation of Solution
Labor spending variance is determined by deducting actual labor cost from the standard labor cost.
Here, standard labor cost is $102,000 (calculated in sub part 2) and actual cost of labor is $102,350.
So, required variance will be:
Labor spending variance is $350 unfavorable.
4
Labor rate variance
labor cost variance represents the difference between actual cost incurred on labor and expected cost.
Labor efficiency variance
Labor efficiency variance represents the difference between actual hours worked by labors and the expected hours.
Amount of labor rate and efficiency variances.
Answer to Problem 10E
Labor rate variance is $4,600 unfavorable and labor efficiency variance is $4,250 favorable.
Explanation of Solution
The formula to calculate labor rate variance is:
Here, standard rate is given as $17 per hour and actual labor hours are given as 5,750. Actual rate will be calculated as:
So, actual rate is $17.8 for every hour. Now, variance will be calculated as:
Formula to calculate labor efficiency variance is:
Here, actual hours are given as 5,750, standard hours are 6,000 (calculated in sub part 1) and standard rate is $17 per hour. So, variance will be calculated as:
So, labor rate variance is calculated as $4,600 and labor efficiency variance is calculated as $4,250.
5
Variable overhead rate variance
This variance represents the difference between actual variable cost incurred and standard cost on variable overheads.
Variable overhead efficiency variance
This variance represents the difference between actual hours spent on variable production overhead and the budgeted hours.
Amount of variable overhead rate and efficiency variances.
Answer to Problem 10E
Variable overhead rate variance is $1,150 favorable and variable efficiency variance is 1,000 favorable.
Explanation of Solution
Formula to calculate variable overhead rate variance is:
Here, actual hours worked are 5,750 and standard variable overhead rate is given as $4 per hour. Actual variable overhead rate will be calculated as:
So, actual variable overhead rate is $3.8 per hour. Now, variance will be calculated as:
Formula to calculate variable overhead efficiency variance is:
Here, standard overhead efficiency variance is given as $4 per hour, actual hours are 5,750 and standard hours are 6,000 (calculated in sub part 1). So, the calculation of variance will be:
So, variable overhead rate variance is calculated as $1,150 favorable and variable overhead efficiency variance is calculated as $1,000 favorable.
Want to see more full solutions like this?
Chapter 9 Solutions
INTRO MGRL ACCT LL W CONNECT
- Cozy, Inc., manufactures small and large blankets. It estimates $950,000 in overhead during the manufacturing of 360,000 small blankets and 120,000 large blankets. What is the predetermined overhead rate if a small blanket takes 2 hours of direct labor and a large blanket takes 3 hours of direct labor?arrow_forwardCozy, Inc., manufactures small and large blankets. It estimates $350,000 in overhead during the manufacturing of 75,000 small blankets and 25,000 large blankets. What is the predetermined overhead rate if a small blanket takes 1 machine hour and a large blanket takes 2 machine hours?arrow_forwardPlata Company has identified the following overhead activities, costs, and activity drivers for the coming year: Plata produces two models of microwave ovens with the following activity demands: The companys normal activity is 21,000 machine hours. Calculate the total overhead cost that would be assigned to Model X using an activity-based costing system: a. 230,000 b. 240,000 c. 280,000 d. 190,000arrow_forward
- Steeler Towel Company estimates its overhead to be $250,000. It expects to have 100,000 direct labor hours costing $2,500,000 in labor and utilizing 12,500 machine hours. Calculate the predetermined overhead rate using: A. Direct labor hours B. Direct labor dollars C. Machine hoursarrow_forwardUse the following information for Exercises 9-63 and 9-64: Palladium Inc. produces a variety of household cleaning products. Palladiums controller has developed standard costs for the following four overhead items: Next year, Palladium expects production to require 90,000 direct labor hours. Exercise 9-64 Performance Report Based on Actual Production Refer to the information for Palladium Inc. above. Assume that actual production required 93,000 direct labor hours at standard. The actual overhead costs incurred were as follows: Required: Prepare a performance report for the period based on actual production.arrow_forwardBobcat uses a traditional cost system and estimates next years overhead will be $800.000, as driven by the estimated 25,000 direct labor hours. It manufactures three products and estimates the following costs: If the labor rate is $30 per hour, what is the per-unit cost of each product?arrow_forward
- SmokeCity, Inc., manufactures barbeque smokers. Based on past experience, SmokeCity has found that its total annual overhead costs can be represented by the following formula: Overhead cost = 543,000 + 1.34X, where X equals number of smokers. Last year, SmokeCity produced 20,000 smokers. Actual overhead costs for the year were as expected. Required: 1. What is the driver for the overhead activity? 2. What is the total overhead cost incurred by SmokeCity last year? 3. What is the total fixed overhead cost incurred by SmokeCity last year? 4. What is the total variable overhead cost incurred by SmokeCity last year? 5. What is the overhead cost per unit produced? 6. What is the fixed overhead cost per unit? 7. What is the variable overhead cost per unit? 8. Recalculate Requirements 5, 6, and 7 for the following levels of production: (a) 19,500 units and (b) 21,600 units. (Round your answers to the nearest cent.) Explain this outcome.arrow_forwardColonels uses a traditional cost system and estimates next years overhead will be $480,000, with the estimated cost driver of 240,000 direct labor hours. It manufactures three products and estimates these costs: If the labor rate is $25 per hour, what is the per-unit cost of each product?arrow_forwardTri-bikes manufactures two different levels of bicycles: the Standard and the Extreme. The total overhead of $300,000 has traditionally been allocated by direct labor hours, with 150.000 hours for the Standard and 50,000 hours for the Extreme. After analyzing and assigning costs to two cost pools, it was determined that machine hours is estimated to have $200,000 of overhead, with 4,000 hours used on the Standard product and 1,000 hours used on the Extreme product. k was also estimated that the setup cost pool would have $100000 of overhead, with 1,000 hours for the Standard and 1,500 hours for the Extreme. What is the overhead rate per product, under traditional and under ABC costing?arrow_forward
- Box Springs, Inc., makes two sizes of box springs: twin and double. The direct material for the twin is $25 per unit and $40 s used in direct labor, while the direct material for the double is $40 per unit, and the labor cost is $50 per unit. Box Springs estimates it will make 5,000 twins and 9,000 doubles in the next year. It estimates the overhead for each cost pool and cost driver activities as follows: How much does each unit cost to manufacture?arrow_forwardCrystal Pools estimates overhead will utilize 250,000 machine hours and cost $750,000. It takes 2 machine hours per unit, direct material cost of $14 per unit, and direct labor of $20 per unit. What is the cost of each unit produced?arrow_forwardGreen Bay Cheese Company estimates its overhead to be $375,000. It expects to have 125,000 direct labor hours costing $1,500,000 in labor and utilizing 15,000 machine hours. Calculate the predetermined overhead rate using: A. Direct labor hours B. Direct labor dollars C. Machine hoursarrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
- Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,