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 $55,650, all of which were used in the production of 3,200 units of product. In addition, 4,900 direct labor-hours were worked on the product during the month. The cost of this labor time was $36,750. The following variances have been computed for the month:

Materials quantity variance	$	4,500	U
Labor spending variance	$	3,150	U
Labor efficiency variance	$	700	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

Ans. 1 a   *Standard quantity = Actual output * Standard quantity per unit of output  
3,200 * 3 feet  
9,600 feet  
      
   Materials quantity variance = (Standard quantity - Actual quantity) * Standard price  
-$4,500 = (9,600 - Actual quantity) * $5  
-$4,500 / $5 = 9,600 - Actual quantity  
-900 = 9,600 - Actual quantity  
Actual quantity = 9,600 + 900  
Actual quantity = 10,500  
      
   Actual cost per foot = Actual materials cost / Actual quantity  
$55,650 / 10,500  
$5.30 per foot  
      
Ans. 1 b   Materials price variance = (Standard price - Actual price) * Actual quantity  
($5 - $5.30) * 10,500  
-$0.30 * 10,500  
-$3,150   or $3,150 unfavorable
      
Ans. 2 a   Labor rate variance = Labor spending variance - Labor efficiency variance  
$3,150 unfavorable - $700 unfavorable  
$2,450 unfavorable  
      
   Labor rate variance = (Standard rate * Actual hours) - Actual labor cost   
-$2,450 = (Standard rate * 4,900) - $36,750  
-$2,450 + $36,750 = (Standard rate * 4,900)   
$34,300 = Standard rate * 4,900  
Standard rate = $34,300 / 4,900  
Standard rate = $7 per hour  
      
Ans. 2 b   Labor efficiency variance = (Actual hours - Standard hours) * Standard rate  
-$700 = (4,900 - Standard hours) * $7  
$700 / $7 = 4,900 - Standard hours  
100 = 4,900 - Standard hours  
Standard hours = 4,900 - 100  
Standard hours = 4,800 hours
      
Ans. 2 c   Standard hours allowed per unit of product = Standard hours / Units produced  
4,800 / 3,200  
1.50 hours per unit