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 $60,120, 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 $53,900. The following variances have been computed for the month:

Materials quantity variance	$	2,100	U
Labor spending variance	$	3,500	U
Labor efficiency variance	$	1,050	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

1) a) Std Qty for actual production = Actual units*Std qty per unit

= 3,200 units*3 feet = 9,600 feet

Std price per feet = $5 per foot

Materials Qty Variance = (Std Qty - Actual Qty)*Std Price

$2,100 U = (9,600 feet - Actual Qty)*$5 per foot

-$2,100/$5 = 9,600 - AQ

-420 = 9,600 - AQ

AQ = 9,600+420 = 10,020 feet

Actual qty of materials used = 10,020 feet

Actual price per foot = Actual material cost/Actual qty

= $60,120/10,020 feet = $6 per foot

b) Materials Price Variance = (Std Price - Actual Price)*Actual Qty

= ($5 - $6)*10,020 = $10,020 Unfavorable

Materials Spending Variance = Std materials cost - Actual materials cost

= (3,200 units*3 feet per unit*$5 per foot) - $60,120

= $48,000 - $60,120 = $12,120 Unfavorable

2) a) Labor rate variance = Labor spending variance - Labor efficiency variance

= $3,500 U - $1050 U = $2,450 U

Actual rate per hour = Actual labor cost/Actual labor hours

= $53,900/4,900 hrs = $11 per hour

Labor rate variance = (Std rate - Actual rate)*Actual hours

-$2,450 = (SR - $11)*4,900

-2,450/4,900 = SR - $11

-0.50 = SR - 11

SR = 11-0.50 = $10.50

Therefore standard labor rate per hour is $10.50.

b) Labor Efficiency variance = (Std hrs - Actual hrs)*Std rate

-1,050 = (Std hrs - 4,900 hrs)*$10.50

-1,050/10.50 = Std hrs - 4,900 hrs

SH = 4,900 hrs-(1,050/10.50)

= 4,900 hrs - 100 = 4,800 hrs

Therefore standard hours allowed is 4,800 hours.

c) Std hrs allowed per unit = Std hrs allowed for month's prodn/Actual production

= 4,800 hrs/3,200 units = 1.50 hour per unit