Exercise-3 (Labor and variable overhead variances)

Universal Electronics Inc., manufactures a voice recording device. The following information has been obtained from direct labor standards that the company has set for this device.

  • Standard time to complete one unit: 24 minutes
  • Standard direct labor rate: $12 per hour

During the month of June, 8,500 hours were worked and 20,000 units were manufactured. The actual direct labor and variable manufacturing overhead costs incurred for the month of June were as follows:

  • Direct labor cost: $98,600
  • Variable manufacturing overhead cost: $78,200

The budgeted variable manufacturing overhead rate of Universal Electronics Inc., was $8.

Required:

  1. Compute labor rate variance and labor efficiency variance for June.
  2. Compute variable overhead spending and efficiency variances for June.

Solution:

(1) Labor rate and efficiency variance:

exercise-3-scava-img1

exercise-3-scava-img2

*Standard hours allowed for actual production of 20,000 units:

24 minutes = 24/60 hours

(24/60) × 20,000 units = 8,000 hours

(2) Variable overhead spending and efficiency variance:

exercise-3-scava-img3

exercise-3-scava-img4

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One Thought on Exercise-3 (Labor and variable overhead variances)

  1. mitzi l. palmes

    Please try to formulate one problem including all the variances.

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