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) The actual cost per foot (March) is calculated as follows:

Actual cost per foot = Direct materials cost / Actual Quantity

= $ 53,730 / 8955 feet

= $6 per foot

The actual quantity is calculated as follows :

Materials quantity variance = ( Standard quantity - Actual quantity ) x Standard price

-$1650 = [ ( 3 feet x 2875 units) - Actual quantity ] x $5

-$1650 = ( 8625 feet x $5 ) - AQ x $5

AQ x $5 = $43125 + $1650

Actual quantity = $44775 / $5 per foot

Actual quantity = 8955 feet

1 ( b ) Material price variance / Material spending variance :

Material price variance = ( Standard price - Actual price ) x Actual quantity

Material price variance = ( $5 - $6 ) x 8955 feet

Material price variance = $8955 U

The total variance for materials :

Material Cost variance = Material price variance (+) Material quantity variance

=  $8955 U + $1650 U

= $10605 U

2(a) Standard direct labor rate per hour :

Labour spending variance = ( Standard labour rate - Actual labour rate ) x Actual hours

$3100 U = (SR - $8) x 4700 hours

- $3100 = (SR x 4700 hours) - ($8 x 4700 hours)

- $3100 = (SR x 4700 hours) - $37600

SR = (- $37600 + $3100) / 4700 hours

SR = $7.34 per hour

Therefore Standard direct labor rate per hour = $7.34 per hour

2(b) Standard hours allowed for the month’s production :

Labor efficiency variance = ( Standard hours - Actual hours ) x Standard rate

$750U = ( Standard hours - 4700 hours ) x $7.34 per hour

- $750U = ( SH x $7.34per hour) - (4700 hours x $7.34 per hour)

- $750U = ( SH x $7.34) - $34498

SH = (- $34498 + $750) / $7.34

SH = 4598 hours

Therefore Standard hours allowed for the month’s production are 4598 hours

2(c) Standard hours allowed per unit of product :

SH allowed per product = 4598 hours / 2875 units'

SH allowed per product = 1.60 hour