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 $57,510, all of which were used in the production of 3,125 units of product. In addition, 5,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $51,000. The following variances have been computed for the month: Materials quantity variance $ 1,050 U Labor spending variance $ 3,500 U Labor efficiency variance $ 950 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

	Materials Quantity variance
	(AQ used - Std Qty allowed)*SR
	(x - 3125*3)*5 =1050U
	5x - 46,875 = 1050U
	x	=(1050+46,875)/5
		9585
a)	actual cost =		57,510/9585
			6	per foot	answer
(
b)	Materials price variance
	(Actual rate - standard rate)*AQ purchased
	(6 - 5)*9585
	9585	U	answer
	Spending variance =		1050U+9585U
			10635	U	answer
2a)	labor spending varian				3,500	U
	labor efficiency varian				950	U
	labor price variance				2550	U
	labor rate variance = ( Actual rate - standard rate)*Actual hours
			(51,000 - x*5,100)		=	2550
			x =	(51000-2550)/5100
				9.5
	Standard rate		9.5	hours
b)	Standard hours =
	labor efficiency variance
	(Actual hours - standard hours allowed)*Standard rate
	(5100 -x ) *9.5 = 950
	48,450 - 9.5x = 950
	x                       = (48450-950)/9.5
		5000
	Standard hours allowed			5,000	hours
c)	Standard hours allowed per unit of product
	5000/3125
	1.6
	Standard hours allowed per unit of product				1.6	hours per unit