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 $54,285, all of which were used in the production of 3,200 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 $44,100. The following variances have been computed for the month:

Materials quantity variance	$	1,350	U
Labor spending variance	$	3,300	U
Labor efficiency variance	$	850	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

-1350 = (3200*3*5-5X)

5X = 48000+1350

X(actual qty) = 49350/5 = 9870 foot

Actual cost per foot = 54285/9870 = 5.5

1b) Material price variance = (5-5.5)*9870 = 4935 U

Material spending variance = (3200*15-54285) = 6285 U

2a) Labor rate variance = 3300-850 = 2450 U

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

-2450 = (X*4900-44100)

-4900X = -41650

X(Standard rate) = 8.50

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

-850 = (X*8.5-4900*8.5)

-8.5X = -40800

X(Standard hour) = 4800 Hour

2c) Standard hour per unit = 4800/3200 = 1.50 hour per unit