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 $45,180, all of which were used in the production of 2,290 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 $32,900. The following variances have been computed for the month: Materials quantity variance $ 3,300 U Labor spending variance $ 3,130 U Labor efficiency variance $ 780 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

1. For direct materials

(a) actual cost per foot of materials for March.

= Materials cost variance = ( standard quantity - actual quantity)* standard price

-$3300 = (2290*3)- actual price)*5

-3300= ($6870-actual price)*5

-3300/5 = $6870-actual price

Actual price = 6870+660

Actual price = $7530

Actual cost =$45180/$7530

Actual cost =$6

(b) computing price variance and the spending variance

Materials price variance

= ( standard Variance - actual variance)* actual quantity

(5-6)*7530

-1*7530

Material price variance = $7530 unfavorable

Material spending variance

= ( standard cost - actual cost)

=(5*6870)-$45180

$34350-$45180 =$10830

Material price variance = $11460 unfavorable

2.For direct labor

(a) standard direct labor rate per hour

Labor spending variance

= standard expense - Actual expense

=-3130 =standard expense - $32900

Standard expense = $32900-3130

Standard expense = $29770

(b) standard hours allowed for the month’s production

Labor price variance

= Labor spending variance - labor efficiency variance

= -3130-(-780)

Labor price variance =-$2350

Labor price variance

=( standard rate - actual rate)* actual hours

-$2350 =( standard rate-32900/4700)*4700

-$2350 = ( standard rate -7)*4700

-0.5 +7 = standard rate

Standard direct labor rate per day =$ 6.5

(c) standard hours allowed per unit of product.

Labor efficiency variance

=(standard hour - Actual hour)*standard rate

$780 = ( standard hour- 4700)*6.5

Standard hour = 4580

standard hours allowed per unit of product.

=Standard hour/ total units

=4580/2290

$2 per hour