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 $52,740, all of which were used in the production of 2,750 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 $40,500. The following variances have been computed for the month: Materials quantity variance $ 2,700 U Labor spending variance $ 3,100 U Labor efficiency variance $ 850 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

a)Material quantity variance = SR[AQ-SQ]]

    2700 = 5 [AQ -(2750*3)]

   2700/5 = [AQ- 8250]

   540 = AQ- 8250

   AQ = 540+8250 = 8790

actual cost per foot of materials for March = 52740/ 8790 = $ 6 Per foot

b)Price variance : Actual cost -[AQ*SR]

             = 52740 - [8790*5]

                52740-43950

                = 8790 U

Spending variance =price +quantity variance

          = 8790+ 2700

            = 11490 U

2)a Labor rate variance = labor spending variance -labor efficiency variance

               = 3100 -850

              = 2250 U

Labor rate variance = Actual cost- [AH*SR]

    2250 = 40500 -[4500*SR]

   4500SR = 40500-2250

   SR= 38250/4500 =$ 8.5 per hour

standard direct labor rate per hour. = $ 8.50

B) Labor efficiency variance =SR[AH-SH]

         850 = 8.5[4500- SH]

          850/ 8.5 = 4500-SH

           SH = 4500-100

                  = 4400 hours

standard hours allowed per unit of product.= 4400/ 2750 = 1.6 per unit