Erie Company manufactures a small CD player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate CD player are as follows: During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled 73,600 for the month.
(a) What direct labor cost should have been incurred to make 20,000 units of the Jogging Mate? By how much does this differ from the cost that was incurred?

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The direct labor cost totaled $73,600 for the month 1.

Standard labor time per unit = 18 minutes / 60 minutes

= 0.3

Number of units manufactured 20000

Standard labor time per unit 0.3

Total standard hours labor time allowed $6000(20000*0.3)

Standard labor rate per hour $12

Total standard direct labor cost $72000(6000*12)

Actual direct labor cost $73600

Standard direct labor cost $72000

Variance $1600 unfavourable.

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