Question

The auto repair shop of Quality Motor Company uses standards to control the labor time and labor cost in the shop.The standard labor cost for a motor tune-up is given below:
Standard Hours Standard Rate Standard Cost
Motor tune-up 2.50 $35.00 $87.50
The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 60 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups:
Labor rate variance $ 50 F
Labor spending variance $ 55 U
Required:
1. Determine the number of actual labor-hours spent on tune-ups during the week.
2. Determine the actual hourly rate of pay for tune-ups last week.

Answer 1

Answer:

Actual Quantity= 151.57

Actual Rate= $3.17

Explanation:

Giving the following information:

Standard Hours 2.50

Standard Rate $35.00

Standard Cost $87.50

Number of tune-ups= 60

Labor rate variance $ 50 F

Labor spending variance $ 55 U

First, we need to calculate the actual number of hours. We need to use the direct labor efficiency variance:

Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate

-55 = (60*2.5 - Actual Quantity)*35

-55 = 5,250 - 35Actual Quantity

35Actual Quantity = 5,305

Actual Quantity= 151.57

Now, the actual hourly rate. We need to use the direct labor rate variance formula:

Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity

50 = (3.5 - Actual Rate)*151.57

50= 530.5 - 151.57Actual Rate

151.57Actual Rate= 480.5

Actual Rate= $3.17