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 $44,100, all of which were used in the production of 2,350 units of product. In addition, 4,800 direct labor-hours were worked on the product during the month. The cost of this labor time was $40,800. The following variances have been computed for the month:

Materials quantity variance	$	1,500	U
Labor spending variance	$	3,200	U
Labor efficiency variance	$	800	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

AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price
AH = Actual Hours
SH = Standard Hours
AR = Actual Rate
SR = Standard Rate
Requirement 1 for direct materials
a. Actual Cost per foot of materials for March
Material Quantity Variance	(Standard Quantity for Actual Output - Actual Quantity) X Standard Price
1500 U	= [7050 - AQ] X 5
-1500/5 =	7050-AQ
AQ =   7050+300 =7350
Actual cost per foot =44100/7350 = $6 per Foot
Requirement 1-b
Material Price Variance	(Standard Price - Actual Price) X Actual Quantity Consumed
	= [5 - 6] X 7350
	= 7,350 Unfavourable
Material Spending Variance =	Material Price Variance + Material Quantity variance
	= 7350 U + 1500U
	= 8850 U
Requirement 2 for direct labour
a. Standard direct labour rate per hour
Labour Spending variance =	Labor rate variance +Labor Efficiency variance
3200 U =labor rate variance + 800 U
Labour Rate Variance = 2400 Unfavourable
Labour Rate Variance	(Standard rate - Actual rate) X Actual Hours
Labour Rate Variance =	SRXAH -ARXAH
2400 U =	SRX4800 -40800
40800-2400 =	SRX4800
Standard Rate = 38,400/4800 = $8 per Hour
Requirement 2-b
Labour Efficiency Variance	(Standard Hours for Actual Output - Actual Hours worked ) X Standard rate
800U =	(Standard Hours for Actual Output -4800 ) X $8
800 U/ $8 =	Standard Hours for Actual Output -4800
Standard Hours for Actual Output	=-100 + 4800
Standard Hours for Actual Output	= 4,700
Requirement 2-c
Standard hours allowed per unit of prouduct = 4,700Hours /2,350 units
=   2 hours per unit of product