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 $59,650, all of which were used in the production of 3,400 units of product. In addition, 4,900 hours of direct labor time were worked on the product during the month. The cost of this labor time was $40,750. The following variances have been computed for the month:

Materials quantity variance	$	1,500	U
Labor spending variance	$	50	F
Labor efficiency variance	$	1,600	F
b. 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)) .a. Compute the standard direct labor rate per hour. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) b. Compute the standard hours allowed for the month’s production.

Answer 1

Material Price Variance :- (SR – AR) * Actual Qty

   SR = 5

   AR = ??

Actual Qty = ??

Std Qty = 3400*3 = 10200

    Material Qty Variance = 1500(U)

( Std Qty – Actual Qty) * SR = 1500(U)

( 10200 – AQ) * 5 = 1500(U)

51000 – 5 AQ = 1500(U)

AQ = 10500

AR = Actual cost / AQ

    = 59650/10500 = 5.68

   (SR – AR) * AQ

(5 – 5.68) * 10500 = 7140(U)

Material Spending Varaince = Material Price Variance + Mterial Qty Variance

      = 7140(U) + 1500(U) = 8640(U)

(b) Std Direct Labour per Hr :-

Labour Spending variance = 50(F)

Labour Eff Variance = 1600(F)

Labour Price variance = Labour Spending Variance – Labour Eff Varinace

    Labour Price variance= 50-1600 = 1550(U)

    (SR – AR) * Actual hrs = 1550(U)

(SR – 40750/4900) * 4900 = 1550(U)

SR = 8

(C) Std Hrs :-

     Labour Eff Varaince = 1600(F).

(Std Hrs – Actual Hrs) * SR = 1600

(SH – 4900) * 8 = 1600

SH = 4700