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 $45,210, all of which were used in the production of 2,500 units of product. In addition, 4,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $30,750. The following variances have been computed for the month:

Materials quantity variance	$	3,600	U
Labor spending variance	$	2,750	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 = (Standard qty-actual qty)Standard price

-3600 = (2500*3*5-5X)

5X = 37500+3600

X(Actual quantity) = 8220

Actual Cost per foot = 45210/8220 = 5.5

1b) Material price variance = (5-5.5)*8220 = 4110 U

Material spending variance = (2500*15-45210) = 7710 U

2a) Labor rate variance = 2750-700 = 2050 U

Labor rate variance = (Standard rate-actual rate)actual hour

-2050 = (X*4100-30750)

-4100X = -28700

X(Standard rate) = 7

2b) Labor efficiency variance = (Standard hour-actual hour)Standard rate

-700 = (X*7-4100*7)

-7X = -28000

X(Standard hour) = 4000 Hour

2c) Standard hour per unit = 4000/2500 = 1.60 hour per unit