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 $54,630, 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 $47,000. The following variances have been computed for the month:

Materials quantity variance	$	2,400	U
Labor spending variance	$	3,300	U
Labor efficiency variance	$	950	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)

Material Quantity Variance = { Standard Quantity - Actual Quantity ] X Standard Price

-2400 = {( 3 X 2875 units )- Actual Quantity } X 5

Actual Quantity = 8625 + 480

Actual Quantity = 9105

Actual cost per foot = $54630/ 9105

Actual cost per foot = 6/-

Material Price Variance = {Standard price – Actual Price } X Actual Quantity

= { 5- 6 } X 9105 = $9105 Unfavorable

Material Spending Variance   = { Standard price X Standard Price - Actual Price X Actual Quantity }

= { 5 X 8625 – 6 X 9105 } = $11505 Unfavorable

2)

Labor Rate Variance = Labor Spending variance - labor efficiency variance

= 3300 – 950 = $ 2350 Unfavorable

Labor rate variance = { Standard rate x actual hours } – { Actual rate x Actual hours }

-2350 = Actual labor cost – ( Standard rate x 4700 )

Standard rate x 4700 = 47000 – 2350

Standard rate = 9.5 per hour

Labour Effeciency variance = { Standard hours - Actual hours } x Actual rate

950 = { 4700 - Standard hours } x 9.5

4700 - Standard hours = 950/9.5

Standard Hours = 4600 hours

Standard Hours allowed per unit of product = 4600 / 2875 = 1.6 Hours