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 $59,040, all of which were used in the production of 3,000 units of product. In addition, 4,600 hours of direct labor time were worked on the product during the month. The cost of this labor time was $34,500. The following variances have been computed for the month:

Materials quantity variance		$	4,200	U
Labor spending variance		$	3,900	U
Labor efficiency variance		$	680	U
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

unfavorable variances are positive and favorable variances are negative
a.
Materials quantity variance = SP x (AQ − SQ)
SQ = 3,000 units × 3 foot per unit	9000
$4,200 U = $5.00 per foot (AQ − 9,000 feet)
AQ = (9000 x $5 )+ $4200/$5	9840	feet	U
Actual Cost = $59,040/9840	$          6.00	per foot
b.
Materials price variance = AQ x (AP − SP)
Materials price variance = 9840 x (6 - 5)	$   9,840.00	U
Total (Spending) variance = MPV + MQV
Materials price variance =	$   9,840.00	U
Materials quantity variance =	$   4,200.00	U
Total (Spending) variance =	$ 14,040.00	U
2)
a.
Labor spending variance = LRV + LEV
3900 U = LRV + $680U
LRV = 3900 U - 680 U	3220	U
Actual labour Rate = $34500/4600	$          7.50
Labor rate variance = AH x (AR − SR)
3220 U = 4600 x ($7.50 - SR)
SR = (4600 x 7.50 - 3220)/4600	$          6.80	per hour
b)
Labor efficiency variance = SR x (AH − SH)
$680 U = $6.80 x (4600 - SH)
SH =( (4600 x 6.80 )-680)/6.80	4,500.00	hours
c)
Standard hours allowed per unit of product = 4,500 hours ÷ 3,000 units	1.50	hours per unit