EXERCISE 10–11 Labour and Variable Manufacturing Overhead Variances [LO3, LO4] 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:
During July, 3,400 hours of direct labour time were recorded to make 16,000 units. The direct labour cost totalled $49,300 for the month.
1. What direct labour cost should have been incurred to make the 16,000 DVD players? By how much does this differ from the cost that was incurred?
2. Break down the difference in cost from (1) above into a labour rate variance and a labour efficiency variance.
3. The budgeted variable manufacturing overhead rate is $4.00 per direct labour-hour. During July, the company incurred $15,640 in variable manufacturing overhead cost. Compute the variable overhead spending and efficiency variances for the month.