Monte Services, Inc. is trying to establish the standard labor cost of a typical
ID: 2419192 • Letter: M
Question
Monte Services, Inc. is trying to establish the standard labor cost of a typical oil change. The following data have been collected from time and motion studies conducted over the past month
Determine the standard direct labor hours per oil change. (Round answer to 2 decimal places, e.g. 2.75.)
Determine the standard direct labor hourly rate. (Round answer to 2 decimal places, e.g. 2.75.)
If an oil change took 1.5 hours at the standard hourly rate, what was the direct labor quantity variance? (Round answer to 2 decimal places, e.g. 2.75.)
Actual time spent on the oil change $1.00 hour Hourly Wage Rate $14 Payroll Taxes 14% of wage rate Setup and Downtime 9% of actual labor Cleanup and rest periods 26% of actual labor time Fringe benefits 24% of wage rateExplanation / Answer
Answer:
Standard direct labor hours per oil change. =
Actual time spent on the Oil change $ 1.00 hour
Set up and downtime 9% of actual labor time
Cleanup and rest period is 26% of actual labor time
1 + ( 1 * 9% ) + ( 1 * 26% ) =
1 + ( 0.09 ) + ( 0.26) = 1.35 Hour.
2. Standard direct labor hourly rate:
Hourly Wages Rate $ 14
Payroll taxes 14% of wages rate
Fringe benefits 24% of wages rate
14 + ( 14 * 14% ) + ( 14 * 24% )
= 14 + 1.96 + 3.36 = $ 19.32
3. Standard hours = $ 19.32 * 1.35 = $ 26.08
Actual Hours = $ 19.32 * 1.5 = $ 28.98
$ 28.98 - $ 26.08 = $ 2.9
It is a Unfavorable variance.