Question

Sharp Company manufactures a product for which the following standards have been set:

	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	3	feet	$	5	per foot	$	15
Direct labor	?	hours		?	per hour		?

During March, the company purchased direct materials at a cost of $56,610, all of which were used in the production of 2,875 units of product. In addition, 4,700 direct labor-hours were worked on the product during the month. The cost of this labor time was $37,600. The following variances have been computed for the month:

Materials quantity variance	$	4,050	U
Labor spending variance	$	2,180	U
Labor efficiency variance	$	770	U

Required:

1. For direct materials:

a. Compute the actual cost per foot of materials for March.

6.00

b. Compute the price variance and the spending variance.

2. For direct labor:

a. Compute the standard direct labor rate per hour.

b. Compute the standard hours allowed for the month’s production.

c. Compute the standard hours allowed per unit of product.

Answer 1

Ans. 1 a	*Standard quantity = Actual output * Standard quantity per unit of output
	2,875 * 3 feet
	8,625 feet
	Materials quantity variance = (Standard quantity - Actual quantity) * Standard price
	-$4,050 = (8,625 - Actual quantity) * $5
	-$4,050 / $5 = 8,625 - Actual quantity
	-810 = 8,625 - Actual quantity
	Actual quantity = 8,625 + 810
	Actual quantity = 9,435
	Actual cost per foot = Actual materials cost / Actual quantity
	$56,610 / 9,435
	$6.00
Ans. 1 b	Materials price variance = (Standard price   - Actual price) * Actual quantity
	($5 - $6.00) * 9,435
	-$1.00 * 9,435
	-$9,435	or   $9,435 unfavorable
	Materials spending variance = (Standard quantity * Standard rate) - Actual materials cost
	(8,625 * $5) - $56,610
	$43,125 - $56,610
	-$13,485	or   $13,485 unfavorable
Ans. 2 a	Labor rate variance = Labor spending variance - Labor efficiency variance
	-$2,180 - (-$770)
	-$2,180 + $770
	-$1,410 or $1,410 unfavorable
	Labor rate variance =   (Standard rate * Actual hours) - Actual labor cost
	-$1,410 = (Standard rate * 4,700) - $37,600
	-$1,410 + $37,600 = (Standard rate * 4,700)
	$36,190 = Standard rate * 4,700
	Standard rate = $36,190 / 4,700
	Standard rate = $7.70 per hour
Ans. 2 b	Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
	-$770 = (Standard hours - 4,700) * $7.70
	-$770 / $7.70= (Standard hours - 4,700)
	-100 =   Standard hours - 4,700
	-100 + 4,700 =   Standard hours
	Standard hours = 4,600   hours
Ans. 2 c	Standard hours allowed per unit of product = Standard hours / Units produced
	4,600 / 2,875
	1.60 hours per unit