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 hours of direct labor time 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 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: (Do not round intermediate calculations.)

a.	Compute the standard direct labor rate per hour. (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

Solution :

1. For Direct Material

(a)	Actual Cost per Foot for Material	$ 5.50
(b)	Material Price Variance	$ 4,110 U
	Material Spending Variance	$ 7,710 U

2. For Direct Labor

(a)	Standard Labor Rate per Hour	$ 7.00
(b)	Standard Hours Allowed	4,000
(c)	SH Hours Allowed per Unit	1.6

Working :

1. For Direct Material :

(a) Actual Cost per Foot for Material    = Total Actual Cost of Purchases / Actual Quantity

Material Quantity Variance = (SQ - AQ) * SR

- $ 3,600 = [(2,500 * 3) - AQ ] * $ 5

- $ 3,600 = [7,500 - AQ] * $ 5

- $ 720 = 7,500 - AQ

AQ = 7,500 + 720

AQ = 8,220 Foots

Actual Cost per Foot for Material = $ 45,210 / 8,220

= $ 5.5 per Foots

(b)

Material Price Variance = (SR - AR) * AQ

= ($ 5 - $ 5.50) * 8,220

= $ 4,110 Unfavorable

Material Spending Variance = Standard Cost - Actual Cost

  = (2,500 Units * 3 * $ 5) - $ 45,210

= $ 37,500 - $ 45,210

= $ 7,710 Unfavorable

2. For Direct Labor

(a) Standard Labor Rate per Hour

Labor Price Variance = Labor Spending Variance - Labor Efficiency Variance

= $ 2, 750 U - $ 700 U

= $ 2,050 U

Labor Price Variance = (SR - AR) * Actual Hours

- $ 2,050 = [SR - ($ 30,750 / 4,100 Hours)] * 4,100

- $ 2,050 = [SR - $ 7.5] * 4,100

- $ 2,050 = 4,100 SR - $ 30,750

4,100 SR = $ 28,700

SR = $ 7

Standard Direct Labor Hour Rate = $ 7 per Hour

(b) Standard Hours Allowed :

Labor Efficiency Variance = (SH - AH) * SR

- $ 700 = (SH - 4,100) * $ 7

- $ 700 = $ 7 SH - 28,700

$ 7 SH = $ 28,000

SH = 4,000 Hours

(c) SH Hours Allowed per Unit

SH Hours Allowed per Unit = Total SH Hours Allowed for Production / Units Produced

= 4,000 / 2,500

= 1.6 Hours    

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