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 $45,240, all of which were used in the production of 2,400 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 $39,200. The following variances have been computed for the month:

Materials quantity variance	$	3,000	U
Labor spending variance	$	3,200	U
Labor efficiency variance	$	750	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

Solution :

(1) : For direct materials -

(a) : Computation of the actual cost per foot of materials for March .

Materials usage/quantity variance = (Actual Quantity Used- Standard Quantity)*Standard Price

3,000 = (Actual Quantity Used - 3*2,400)*5

Actual Quantity Used = 3,000/5 + 7,200

= 600+7,200

Actual Quantity Used = 7,800

Actual Quantity Purchased all is being used than

Actual Quantity Purchased = Actual Quantity Used

Actual Cost per foot = Actual Material Cost/Actual Quantity Purchased

Actual Cost per foot = $45,240 / 7,800

Actual Cost per foot = $5.8

Therefore actual cost per foot of materials for march   = $5.8

(b) :Computation of the price variance and the spending variance -

Materials price variance = (Actual price - Standard Price) *Actual Quantity

Materials price variance = (5.8-5)*7,800

Materials price variance = $ 6,240 Unfavourable

Spending variance = ( Actual price*Actual Quantity - Standard Price*Standard Quantity)

Spending variance = (5.8*7800 – 5*3*2,400)

= 45,240 – 36,000             

Spending variance = $ 9,240 Unfavourable .

(2) : For Direct labor -

(a) Computation of Standard direrct labor rate per hour -

Labor Rate Variance = Labor Spending Variance - Labor Efficiency Variance

Labor Rate Variance = 3,200 - 750

Labor Rate Variance = 2,450 U

Labor rate variance = (Actual Rate-Standard Rate)*Actual Hour

2,450 = (39,200/4,900-Standard Rate)*4,900

Standard Rate = 8 – 2,450/4,900

Standard Rate = $8-0.5

Standard rate    =$ 7.5

Therefore Standard Direct Labor Rate per hour = $ 7.5

(b) Computation of Standard Hour Allowed = ?

Labor efficiency variance = (Actual Hour - Standard Hour Allowed )Standard Rate

750= (4,900-Standard Hour Allowed )*7.5

Standard Hour Allowed = 4,900 – (750/7.5)

                                             = 4,900 -100

Standard Hour Allowed = 4,800

(c): Compute the standard hours allowed per unit of product -

Standard Hour per unit = Standard Hour Allowed /No of Unit produced

Standard Hour per unit = 4,800/2,400

Standard Hour per unit = 2 Hours