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 $52,965, all of which were used in the production of 2,920 units of product. In addition, 4,500 direct labor-hours were worked on the product during the month. The cost of this labor time was $31,500. The following variances have been computed for the month:

Materials quantity variance	$	4,350	U
Labor spending variance	$	3,030	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. Material Quantity Variance = (Actual usage in units - Standard usage in units) x Standard cost per unit

- $4350 = (Actual Usage - 2920 units x 3 feet) x $5

Actual Usage = - 4350 / 5 + 8760 = 7890 feet

Direct Material Cost = $52,965

a. Actual cost per foot of Material = $52,965 / 7890 = $6.7129

b. Material Price Variance = (Actual price - Budgeted price) x Actual quantity

(6.7129 - 5) x 7890 = $13515 F

Material Spending Variance = Standard cost - Actual Cost = 2920 x 3 x $5 - $52965 = $9165 U

2.  a. Standard direct labor rate per hour = $6.1533

Labor Spending Variance = $3030

Labor Spending Variance = Standard Labor cost - Actual Labor Cost

- $3030 = Standard Labor Cost - $31500

Standard Labor Cost = -3030+31500 = $28,470

$28740 = 2920 units x Standard Hour per unit x Standard Rate per unit

Labor Efficiency Variance = (Actual hours - Standard hours) x Standard rate

- $780 = {4500 - (2920 x Standard Hour per unit)} x Standard Rate

- 780 = 4500 x Standard Rate - 2920 x Standard Hour x Standard Rate

-780 = 4500 x Standard Rate - 28740

Standard Rate per labor Hour = (-780+28740) / 4500 = $6.1533

b.  Standard hours allowed for the month’s production:

- $780 = {4500 - (2920 x Standard Hour per unit)} x $6.1533

-780 / 6.1533 = 4500 - (2920 x Standard Hour per unit)

-126.76 - 4500 = -2920 x Standard Hour per unit

Standard Hour per unit = 4626.76 /2920 = 1.58451

Standard hours allowed for the month’s production = 2920 units x 1.58451 hours per unit = 4626.76

c.  Standard hours allowed per unit = 4626.76 /2920 = 1.58451