Problem - Affordable Electronics Inc. manufactures medium-quality, reasonably priced DVD players. The company uses standards to control its costs. The labour standards that have been set for one player are as follows:
Standard Hours - 18 minutes (0.30 hours)
Standard Rate per Hour - $11.00
Standard Cost - $3.30
During July, 6,850 hours of direct labour time were recorded to make 22,000 units. The direct labour cost totalled $80,145 for the month.
Required -
1-a. What direct labour cost should have been incurred to make the 22,000 DVD players?
1-b. By how much does direct labour cost differ from the cost that was incurred?
2. Break down the difference in cost from requirement 1-b above into a labour rate variance and a labour efficiency variance.
3. The budgeted variable manufacturing overhead rate is $3.00 per direct labour-hou r. During July, the company incurred $18,495 in variable manufacturing overhead cost. Compute the variable overhead spending and efficiency variances for the month.