Question

Exercise 9-11 Working Backwards from Labor Variances [LO9-5] 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 $34.00 $85.00 The record showing the time spent in the shop last week on motor tune-ups has been misplaced. However, the shop supervisor recalls that 54 tune-ups were completed during the week, and the controller recalls the following variance data relating to tune-ups: Labor rate variance $ 350 F Labor spending variance $ 500 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. (Round your answer to 2 decimal places.)

Answer 1

Answer and Explanation:

The computation is shown below;

a. The number of actual hours spent on tune-ups is

as we know that

Total Labor Variance = Labor Rate Variance + Labor Efficiency Variance

$500U = $350F + Labor Efficiency Variance

$500 = -$350 + Labor Efficiency Variance

Labor Efficiency Variance = $850

Now  

Efficiency Variance = Standard Rate × (Actual Hours - Standard Hours )

$850 = 34 × (Actual hours - 2.5 ×  54)

$850 = 34Actual Hours - $4,590

$5,440 = 34 actual hours

Actual Hour = 160 Hours

b. The actual hourly rate is

Labor Rate Variance = Actual hours × (Actual rate - Standard rate)

-350 = 160 × (Actual rate - $34)

-350 = 169 Actual rate - $5,440

$5,090 = 169 Actual rate

Actual rate  = $30.12