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 direct labor-hours 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 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

	Standard			Actual
Particulars	Qty/ hours	Rate	amount	Qty/ hours	Rate	amount
Materials	7,500.00	5.00	37,500.00	8,220.00	5.50	45,210.00
Labour	3,500.00	8.0000	28,000.00	4,100.00	7.50	30,750.00
Actual output	2,500.00
Materials reqd (2500*3)	7,500.00
DMQV= (SQ-AQ)SP
-3,600= (7500 - AQ)5
-720 = 7500 -AQ
AQ = 8,220
Actual cost per foot = 45,210 / 8220	5.50
DMPV = (SP-AP)*AQ purchased
DMPV = ( 5 - 5.50)8220
DMPV = 4,110 U
Direct Material Spending Variance = Std cost - Actual cost
Direct Material Spending Variance = 37,500 - 45,210
Direct Material Spending Variance = 7,710 U
Actual labour rate = 30,750/4,100	7.50
Labour rate variance = 2750 - 700 =2050 U
DLRV= (SR-AR)AH
-2,050= (SR- 7.50)4100
.50 =SR - 7.50
Standard labour rate per hour =8
Standard cost of direct labour = 30,750 - 2,750	28,000.00
Standard hours allowed = 28,000/8	3,500.00
Standard hours allowed per unit = 3500/2500	1.40