Question

Question 3 ch11

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 $57,250, all of which were used in the production of 3,280 units of product. In addition, 4,900 hours of direct labor time were worked on the product during the month. The cost of this labor time was $38,350. The following variances have been computed for the month:

Materials quantity variance	$	3,300	U
Labor spending variance	$	1,010	F
Labor efficiency variance	$	160	F

Required:

1. For direct materials:

a. Compute the actual cost per foot for materials for March. (Round your answer to 2 decimal places.)

b. Compute the price variance and the spending variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance)).

2. For direct labor:

a. Compute the standard direct labor rate per hour. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

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

c. Compute the standard hours allowed per unit of product. (Round your answer to 1 decimal place.)

Answer 1

• All working forms part of the answer
• Workings

Standard Quantity (SQ) = 3280 units x 3 feet = 9840 feet

Standard (SR) = $ 5 per foot

Actual Labor Rate (AR) = $ 38,350 / 4900 hours = 38350/4900

• Requirement 1

Material quantity variance = (SQ – AQ) x SR

$ 3300 U = (9840 feet – AQ) x $ 5 per foot

-3300 = (9840 – AQ) x 5

-3300 = 49200 – 5AQ

5AQ = 49200 + 300

AQ = 9,900 feet

Part ‘a’

Actual Cost per foot = $ 57,250 / 9900 feet = $ 5.78

Part ‘b’

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                        5.00	-	$                       5.78	)	x	9900
	-7750
	Variance		$              7,750.00			Unfavourable-U

Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$             49,200.00	-	$            57,250.00	)
	-8050
	Variance		$              8,050.00			Unfavourable-U

• Requirement 2

Labor Spending Variance = Labor Efificency Variance + Labor Rate Variance

Labor Spending Variance – Labor Efficeiency = Labor rate Variance

1010 F – 160 F = Labor Rate Efficency

$ 850 F = Labor rate Variance

Part ‘A’

Labor Rate Variance = (SR – AR) x Actual Hours

850 = (SR x Actual hours ) –( AR x Actual hours)

850 = 4900SR – 38350

850 + 38350 = 4900SR

SR = 39200 / 4900

SR = $ 8.00 per hour = Standard direct labor rate per hour

PART ‘B’

Labor Efficicency Variance = (SH – AH) x SR

160 F = (SH – 4900 hours) x $ 8

160 = 8SH – 39200

160 + 39200 = 8 SH

SH = 39360 / 8

SH = 4,920 hours = Standard hours allowed for month’s production.

PART ‘C’

Standard hours allowed per unit = 4920 hours / 3280 units = 1.5 hours per unit