The organisation manufactures a mobile fitness device. The company uses standards to control its costs. The labor standards that have been set for one device are as follows:

• Standard hours: 18 minutes

• Standard rate per hour: $15.00

  During August, 6,500 hours of direct labor time were needed to make 20,000 units of the device. The direct labor cost totalled $97,000 for the month.

  Required:

1. a) What is the total labor spending variance, and is it favourable or unfavourable? (4 marks)

2. b) What is the labor rate variance and the labor efficiency variance? (6 marks)

3. c) The budgeted variable manufacturing overhead rate is $5 per direct labor-hour. During August, the company incurred $31,000 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for the month. (6 marks)

Management would like to reduce the amount of time between when a customer places an order for a device and when the order is shipped. For the first quarter of operations during the current year the following data were reported:

• Inspection time: 0.5 day.

• Wait time (from order to start of production): 10 days.

• Process time: 3.0 days.

• Move time: 1.5 days.

• Queue time: 5.0 days.

  Required:

4. d) What percentage of the throughput time was spend on non-value-added activities? (4 marks)

5. e) If by using Lean Production all queue time during production is eliminated, what will be the new manufacturing cycle efficiency? (4 marks)