MinnOil performs oil changes and other minor maintenance services (e.g., tire pressure
checks) for cars. The company advertises that all services are... Accounting MCQs | Accounting MCQs

MinnOil performs oil changes and other minor maintenance services (e.g., tire pressure
checks) for cars. The company advertises that all services are completed within 15 minutes
for each service. On a recent Saturday, 160 cars were serviced, resulting in the following
labor variances: rate, $19 unfavorable; efficiency, $14 favorable. If MinnOil’s standard labor
rate is $7 per hour, determine the actual wage rate per hour and the actual hours worked.
Wage Rate ....Hours Worked
A.
B.
C.
D.

$6.55 42.00$6.67 42.71 $7.45 42.00 $7.50 38.00Show Result

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Detailed Answer

Answer (D) is correct.
Since 160 cars were serviced and each car requires 1/4 of an hour to
service, the “expected” quantity of hours, that is, the quantity that should
have been expended given the achieved level of production, was 40 (160
× .25). The actual number of hours expended can be found by
substituting in the formula for the efficiency variance:
(EQ – AQ) × SP = Labor efficiency variance
(40 – AQ) × $7.00 = $14 F
40 – AQ = 2
AQ = 38
Substituting again allows us to derive the actual wage rate paid:
AQ × (SP – AP) = Labor rate variance
38 × ($7.00 – AP) = $19 U
($7.00 – AP) = .5
AP = $7.50