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 $52,740, all of which were used in the production of 2,750 units of product. In addition, 4,500 direct labor-hours were worked on the product during the month. The cost of this labor time was $40,500. The following variances have been computed for the month:

Materials quantity variance	$	2,700	U
Labor spending variance	$	3,100	U
Labor efficiency variance	$	850	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 - 2750*3)*5 =2700U
	5x - 41250 = 2700U
	x	=(2700+41250)/5
		8790
a)	actual cost =		52740/8790
			6	per foot	answer
(
b)	Materials price variance
	(Actual rate - standard rate)*AQ purchased
	(6 - 5)*8790
	8790	U	answer
	Spending variance =		2700U+8790
			11490	U	answer
2a)	labor spending varian				3,100	U
	labor efficiency varian				850	U
	labor price variance				2250	U
	labor rate variance = ( Actual rate - standard rate)*Actual hours
			(40,500- x)*4500		=	2,250
			x =	(40500-2250)/4500
				8.5
	Standard hours		8.5	per hour
b)	Standard hours =
	labor efficiency variance
	(Actual hours - standard hours allowed)*Standard rate
	(4500 -x ) *8.5 = 850
	38250 - 8.5x = 850
	x                       = (38250-850)/8.5
		4400
	Standard hours allowed			4,400	hours
c)	Standard hours allowed per unit of product
	4400/2750
	1.6
	Standard hours allowed per unit of product				1.6	hours per unit