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 $57,510, all of which were used in the production of 3,125 units of product. In addition, 5,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $51,000. The following variances have been computed for the month:

Materials quantity variance	$	1,050	U
Labor spending variance	$	3,500	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 (a) : Computation of actual cost of per foot of materials for March:

From data gien in question, actual cost per unit of material= 57,510/ 3125 = $ 18.40

Thus, cost per foot= 18.40/ 3= $ 6.13 per foot

(b): Computation of price variance and total spending variance:

Price variance = (Actual rate- Std rate)* Actual qty

= (18.40-15)*3125

= $ 10,625

Total spending variance= Price ariance+Quantity variance

= 10625+1050

= $ 11,675

2. (a): Computation of standard direct labour rate per hour:

From question:

Labour spending variance= $3,500

Actual spending- Standard spending = $ 3,500

Let standard rate per hour be x and standard hours are y

Thus,

(51,000 - x*y) = 3500

or, xy= 47,500 --------------------- eq (i)

Now, labour efficiency variance = $ 950

(Actual hours- Standard hours) * Standard rate= 9500

( 51,00 - y)* x = 9,50

5100x - xy= 950

Putting the value of xy from above (i) equation:

5100x- 47500= 950

5100x= 48450

x= 9.5

Thus, standard direct labour rate per hour= $9.5 per hour

(b) Computation of standard hours per hour of production:

Putting the value of x in equation (i) in step above:

xy = 47,500

9.5y = 47,500

y = 5000

Standard hours = 5,000  

(c) Standard hours allowed per unit of product:

= 5000/ 3125 = 1.6 hours per unit of product