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 $45,180, all of which were used in the production of 2,290 units of product. In addition, 4,700 direct labor-hours were worked on the product during the month. The cost of this labor time was $32,900. The following variances have been computed for the month:

Materials quantity variance	$	3,300	U
Labor spending variance	$	3,130	U
Labor efficiency variance	$	780	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. Materials quantity variance = SP (AQ – SQ)

$5.00 per foot (AQ – (2290*3)) = $3300 U

$5.00 per foot × AQ – $34350 = $3300*

$5.00 per foot × AQ = $37,650

AQ = 7530 feet

*When we use the formula, unfavorable variances are positive and favorable variances are negative.

Therefore, $45,180 ÷ 7530 feet = $6.00 per foot.

b.   Materials price variance = AQ (AP – SP)

7530 feet ($6.00 per foot – $5.00 per foot) = $7530 F

The total variance for materials would be:

Materials price variance………………………………	$   7530	U
Materials quantity variance………………………….	3300	U
Total variance…………………………………………….	$10830	U

2.   a.   Labor rate variance = AH (AR – SR)

4700 hours ((32900/4700) – SR)) = $3910 F*

4700 hours ($7 per hour – SR) = $3910F

$32900 -4700 hours × SR = -$3910*

4500 hours × SR = $36810

SR = $8.18 per hour

*	Total labor variance……………………………………………………….	$   3130	U
	Labor efficiency variance………………………………………………	780	U
	Labor rate variance……………………………………………………….	$3910	F
*	When used with the formula, unfavorable variances are positive and favorable variances are negative.

b.   Labor efficiency variance = SR (AH – SH)

$8.18 per hour (4700 hours – SH) = $780 U

$38446 – $8.18 per hour × SH = $780*

$8.18 per hour × SH = $37666

SH = 4605 hours

*	When used with the formula, unfavorable variances are positive and favorable variances are negative.

.

c. The standard hours allowed per unit of product would be:

4605 hours ÷ 2290 units = 2.01 hours per unit