Question

Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Incomplete Data [LO10-1, LO10-2]

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 $45,240, all of which were used in the production of 2,190 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 $31,500. The following variances have been computed for the month:

Materials quantity variance	$	1,950	U
Labor spending variance	$	3,030	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

1

For Direct Material

a.

Compute the actual cost per foot for materials for March

Materials quantity variance = SP (AQ ? SQ)

**$1,950 U = $5.00 per foot (AQ ? 8730 feet*)

390 = AQ-8730 feet

AQ = 9120 feet

*SQ for Actual Units = 3 p.u*2190 units = 8730 feet

**When used with the formula, unfavorable variances are positive and favorable variances are negative

Therefore, $45240 ÷ 9120 feet

4.960526

45244.32

= $4.961 per foot (Actual Price)

b.

Compute the price variance and the spending variance

Materials price variance = AQ (AP ? SP)

= AQ*AP - AQ*SP

= 45240-9120*5

= 360 F

The total variance for materials is

Materials price variance

1950 U

Materials quantity variance

360 F

Total (Spending) variance

1590 U

2

For Direct Labour

Compute the standard direct labor rate per hour.

Labor rate variance = AH (AR ? SR

= *2250U = 4500 hrs($7-SR)

= 2250 = $31500-4500SR

4500SR = 31500-2250

SR = 29250/4500

SR = $6.50/hr

*Labour Rate Variance = Labour Spending Variance - Labor efficiency variance

= 3030 U - 780U

= 2250 U

** Actual Rate = Actual labour Cost/actual hrs worked

= 31500/4500 hrs

$7/hr

b.

Compute the standard hours allowed for the month’s production

Labor efficiency variance = SR (AH ? SH)

780 U = $6.50(4500 hrs-SH)

120 = 4500hrs-SH

SH = 4500-120

Standard hrs = 4380 hrs

c.

Compute the standard hours allowed per unit of product

The standard hours allowed per unit of product are

= Standard Hrs/Units Produced

4380 hrs/2190 units

= 2hrs/unit