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 $54,615, all of which were used in the production of 3,050 units of product. In addition, 5,000 direct labor-hours were worked on the product during the month. The cost of this labor time was $30,000. The following variances have been computed for the month:

Materials quantity variance	$	3,900	U
Labor spending variance	$	5,600	U
Labor efficiency variance	$	600	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

Requirement 1

a.

Given, Materials quantity variance is $3,900 U

Direct Material Quantity Variance = (Actual Quantity Used - Standard Quantity Allowed) x Standard Price

Direct Material Quantity Variance = (Actual quantity Used - (3,050 units x 3 feets) x $5 = $3,900 U

Actual quantity Used = 9,930 feets

Actual cost per foot = $54,615 / $9,930 feets = $5.5 per foor

b.

Direct Material Price Variance = (Actual Price - Standard Price) x Actual quantity purchased

Direct Material Price Variance = ($5.50- $5.00) x 9,930 feet = $4,965 U

Spending variance = Actual purchase price - (Standard rate x actual units) = $54,615 - ($15 x3,050 units) = $8,865 U

Requirement 2

a.

Given, Labor efficiency variance is $600 U and Labour Spending variance = $5,600 U

So Labour rate variance will be = $5,600 - $600 = $5,000 U

Actual labour rate per hour = $30,000 / 5,000 hours = $6 per hour

Direct Labour Rate Variance = (Actual rate- Standard rate) x Actual hours

Direct Labour Rate Variance = ($6.00 - Standard rate) x 5,000 = $5,000 U

Standard rate = $5 per hour

b.

Direct Labour Efficiency Variance = (Actual hours - Standard Hours allowed) x Standard rate

Direct Labour Efficiency Variance = (5,000 – Standard Hours allowed ) x $5.00 = $600 U

Standard Hours allowed = 4,880 hours

c.

Standard hours allowed per unit = 4,880 hours / 3,050 units = 1.6 hours per unit