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 $53,730, all of which were used in the production of 2,875 units of product. In addition, 4,700 direct labor-hours were worked on the product during the month. The cost of this labor time was $37,600. The following variances have been computed for the month:

Materials quantity variance	$	1,650	U
Labor spending variance	$	3,100	U
Labor efficiency variance	$	750	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	Material Quantity Variances	(Actual Quanity Used(AQ)-Standard Quantity allowed(SQ)) * Standard Rate(SR)
			Let Actual Quanity Used(AQ) be Y
			1650 U=(Y-(2875 *3))*5
			1650=5Y-43125
			5Y=44775
			Y=(44775/5)=8955
		Direct material Purchase Cost	53730
		Actual Cost	6 Per Foot	(53730/8955)
	B	Material Price Variances	(Actual Rate(AR)-Standard rate(SR)) *Actual Quantity Purchased(AQ)
		Material Price Variances	(6-5)*8955
		Material Price Variances	8,955 Unfavorable
	C	Spending Variances	Material Quantity Variances+Material Price Variances
			1650 Unfavorable +8955 Unfavorable
		Spending Variances	10,605 Unfavorable
2	A	Labour Spending Variances	3100 Unfavorable
		Labour efiiciency Variances	750 Unfavorable
		Labour Price Variances	2350 Unfavorable
		(3100-750)	Let Z be Standard Direct Labour rate per hour
		labor rate variance	( Actual rate(AR) - standard rate(SR)*Actual hours
			(37600- Z *4700)=2350
			4700 Z =35250
		Standard Direct Labour rate per hour	7.5 per Hour
		(35250/4700)
	B	Labor efficiency variance	(Actual hours - standard hours allowed)*Standard rate
			Let K be the standard hours allowed
			(4700-K)7.5=750
			(35250-7.5K=750
			7.5K=34500
		Standard Hours Allowed	4600 Hours
		(34500/7.5)
	C	Standard hours allowed per unit of product	1.60
		(4600/2875)