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 $45,210, all of which were used in the production of 2,500 units of product. In addition, 4,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $30,750. The following variances have been computed for the month:

Materials quantity variance	$	3,600	U
Labor spending variance	$	2,750	U
Labor efficiency variance	$	700	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.

For direct materials, compute the price variance and the spending variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

	Price variance $4,110selected answer correct Uselected answer correct Spending variance $11,820selected answer incorrect Uselected answer correct

Answer 1

1.

Material quantity variance = (Actual Quantity - Standard Quantity) * Standard Price

$3,600 = [Actual Quantity - (2,500 units * 3 feets) * $5 per feet

Actual Quantity - 7,500 feets = $3,600 / $5 per feet

Actual Quantity - 7,500 feet = 720 feet

Actual Quantity = 7,500 feet + 720 feet

Actual Quantity = 8,220 feets

a. Actual cost per feet = Actual direct material cost / Actual quantity

= $45,210 / 8,220 feets

= $5.5 per feet

b. Material price variance = (Actual Price - Standard Price) * Actual Quantity

= ($5.5 per feet - $5 per feet) * 8,220 feet

= $4,110 Unfavorable

Material spending variance = (Actual Price - Actual Quantity) - (Standard Price - Standard Quantity)

= ($5.5 per feet * 8,220 feet) - ($5 per feet * 7,500 feet)

= $45,210 - $37,500

= $7,710 Unfavorable

2.

Labor rate variance = Labor spending variance - Labor efficiency variance

= $2,750 - $700

= $2,050

a. Labor rate variance = (Actual rate * Actual hour) - (Standard rate * Actual hour)

    $2,050 = Actual labor cost - (Standard rate * 4,100 hours)

Standard rate * 4,100 hours = $30,750 - $2,050

Standard rate * 4,100 hours = $28,700

Standard rate = $28,700 / 4,100 hours

Standard direct labor hour rate = $7 per hour

b. Labor efficiency variance = (Actual hours - Standard hours) * Standard rate

   $700 = (4,100 hours - Standard hours) * $7 per hour

    4,100 hours - Standard hours = $700 / $7

4,100 hours - Standard hours = 100 hours

Standard hour = 4,100 hours - 100 hours

Standard hour = 4,000 hours (Standard hours allowed for the month's production)

c. Standard Hours allowed per unit of the product = 4,000 hours / 2,500 units

= 1.6 hours