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 $45,375, 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 $50,400. The following variances have been computed for the month:

Materials quantity variance	$	2,250	U
Labor spending variance	$	3,400	U
Labor efficiency variance	$	1,000	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. Actual cost per foot = $6.05

b. Price variance = $7,875 U , Spending Variance = $10,125 U

Working:

Material Quantity Variance = (SQAP - AQ) X SP
where SQAP = Standard quantity for actual production
= 2350 x 3 = 7,050
(7,050 - AQ ) x 5 = -2,250
7,050 - AQ = -450
AQ = 7,050+450 = 7,500
Actual cost of material = 45,375
Actual Price = 45375/7500 = $6.05
Material price variance = (SP - AP ) x AQ
= (5 - 6.05) x 7,500
=7875 U
Material Spending Variance = 2250 U + 7875 U = 10,125 U
Checking:
Actual cost of material used = 45,375
Standard cost of material = 2,350 x 15 = $35,250
Material Spending Variance = 35,250 - -45,375 = 10,125 U

2.

a. $10.00 per hour

b. 4,700 hours

c. 2 hours per unit

Working:

Labor spending variance = 3,400 U
Labor efficiency valriance = 1,000 U
Labor rate variance = 3,400 - 1,000 = 2,400 U
Acutal labor hours = 4,800
Actual labor cost = $50,400
Actual labor rate = 50,400 / 4,800 = $10.50 per hour
Labor efficiency variance = (SH - AH) x SR
Labor rate variance = (SR - AR ) X AH
Where,
SH = Standard hours , AH = Actual hours
SR = Standard Rate , AR = Actual Rate
Therefore,
(SH - AH ) x SR = -1,000 and
(SR - AR ) X AH = -2,400
(SR - 10.50) = -2400/4800 = -0.50
SR = -0.50+10.50 = 10.00
(SH - AH) X SR = -1,000
(SH - AH) x 10 = -1,000
SH - AH = -100
SH = -100+AH = -100+4,800 = 4,700
Standard hours per unit = 4,700 / 2,350 = 2 hours