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 $54,285, all of which were used in the production of 3,200 units of product. In addition, 4,900 direct labor-hours were worked on the product during the month. The cost of this labor time was $44,100. The following variances have been computed for the month:

Materials quantity variance	$	1,350	U
Labor spending variance	$	3,300	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

Solution 1a:

Material quantity variance = $1,350 U

(SQ - AQ) * SR = -$1,350

(3200*3 - AQ) * $5 = -$1,350

AQ = 9870 Foot

Actual cost per foot of materials for march = Total purchase cost / AQ purchased = $54,285 / 9870 = $5.50 per foot

Solution 1b:

Material price variance = (SP - AP) * AQ = ($5 - $5.50) * 9870 = $4,935 U

Material spending variance = Material price variance + Material quantity variance = $4,935 U + $1,350 U

= $6,285 U

Solution 2a:

Standard direct labor cost = Actual cost + Labor spending variance = $44,100 - $3,300 = $40,800

Actual rate of labor = $44,100 / 4900 = $9 per hour

Labor rate variance = Labor spending variance - Labor efficiency variance = $3,300 U - $850 U

= $2,450 U

(SR - AR) * AH = - $2,450

(SR - $9) * 4900 = -$2,450

SR = $8.50 per labor hour

Solution 2b:

Labor efficiency variance = $850 U

(SH - AH) * SR = -$850

(SH - 4900) * $8.50 = - $850

Standard hours allowed for month's production = 4800 hours

Solution c:

Standard hours allowed per unit of product = 4800 / 3200 = 1.50 hours per unit