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 $45,210, all of which were used in the production of 2,500 units of product. In addition, 4,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $30,750. The following variances have been computed for the month: Materials quantity variance $ 3,600 U Labor spending variance $ 2,750 U Labor efficiency variance $ 700 U Required: 1. For direct materials: a. Compute the actual cost per foot of materials for March. 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

	Materials Quantity variance
	(AQ used - Std Qty allowed)*SR
	(x - 2500*3)*5 =3600U
	5x - 37500 = 3600U
	x	=(3600+37500)/5
		8220
a)	actual cost =		45210/8220
			5.5	per foot	answer
(
b)	Materials price variance
	(Actual rate - standard rate)*AQ purchased
	(5.5-5)*8220
	4110	U	answer
	Spending variance =		3600U+4110U
			7710	U	answer
2a)	labor spending varian				2,750	U
	labor efficiency varian				700	U
	labor price variance				2050	U
	labor rate variance = ( Actual rate - standard rate)*Actual hours
			(30750- x*4100)		=	2,050
			x =	(30750-2050)/4100
				7
	Standard hours		7	per hour
b)	Standard hours =
	labor efficiency variance
	(Actual hours - standard hours allowed)*Standard rate
	(4100 -x ) *7 = 700
	28700 - 7x = 700
	x                       = (28700-700)/7
		4000
	Standard hours allowed			4,000	hours
c)	Standard hours allowed per unit of product
	4000/2500
	1.6
	Standard hours allowed per unit of product				1.6	hours per unit