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 $52,740, all of which were used in the production of 2,750 units of product. In addition, 4,500 direct labor-hours were worked on the product during the month. The cost of this labor time was $40,500. The following variances have been computed for the month:

Materials quantity variance	$	2,700	U
Labor spending variance	$	3,100	U
Labor efficiency variance	$	850	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

Req 1a)	Let the actual quanity be x
	Material Quantity Variance = (Standard quantity - Actual Quantity ) Standard Price
	-2700 = ((2750*3) - x )*5
	By solving above we get,
	x=7710
	Actual quanity = 7710 feet
	Cost per fee= Actual cost / actual quanity
		=52740/7710
		6.84
Req 1 b)	Material Price Variance = (Standard Price - Actual Price ) Actual Quantity
			=(5-6.84 ) * 7710
			14190	U
	Material spending Variance = Material price variance + quanity variance
			= -14190 + (-2700)
			= 16890	U
Req. 2A	Let the standard labor rate be "x"
	Labour Rate Variance = (Standard Rate - Actual Rate) Actual Hrs Worked
	-3100 = (x-(40500/4500))* 4500
	-3100 = (x-9)* 4500
	-3100 = 4500x -40500
	x=8.31
Req 2b	Standard Hours allowed for the months Production; let the standard hours be "x"
	Labour Efficiency Variance = (Standard Hrs. - Actual Hrs) Standard Rate
	Putting values in above formula we get
	-850 = (x-4500)*8.31
	-850 = 8.31x - 37400
	8.31x = 37400-850
	x = 4398
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