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 $42,660, all of which were used in the production of 2,250 units of product. In addition, 4,600 direct labor-hours were worked on the product during the month. The cost of this labor time was $34,500. The following variances have been computed for the month:

Materials quantity variance	$	1,800	U
Labor spending variance	$	3,000	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

1a) material quantity variance = (SQ-AQ)SP

-1800 = (2250*3*5-5X)

5X = 33750+1800

X(actual qty) = 7110

Actual Cost per foot = 42660/7110 = 6

1b) Material price variance = (5-6)*7110 = 7110 U

Material spending variance = (2250*15-42660) = 8910 U

2a) Labor rate variance = 3000-700 = 2300 U

Labor rate variance = (SR-AR)AH

-2300 = (X*4600-34500)

-4600X = -32200

X(Standard rate) = 7

2b) Labor efficiency variance = (SH-AH)SR

-700 = (X*7-4600*7)

-7X = -31500

X(Standard hour) = 4500 Hour

2c) Standard hour allowed per unit = 4500/2250 = 2 hour per unit