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 $43,335, all of which were used in the production of 2,425 units of product. In addition, 4,000 direct labor-hours were worked on the product during the month. The cost of this labor time was $28,000. The following variances have been computed for the month:

Materials quantity variance	$	3,750	U
Labor spending variance	$	2,780	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

Solution 1a:

Material quantity variance = $3,750 U

(SQ - AQ) * SP = -$3,750

(2425*3 - AQ) * $5 = -$3,750

AQ = 8025 foot

Actual cost of direct material = $43,335

Actual cost per foot = $43,335 / 8025 = $5.40 per foot

Solution 1b:

Direct material price variance = (SP - AP)* AQ = ($5 - $5.40) * 8025 = $3,210 U

Direct material spending variance = Direct material price variance + Direct material quantity variance

= $3,210 U + $3,750 U = $6,960 U

Solution 2a:

Labor spending variance= $2,780 U

Labor efficiency variance = $780 U

Direct labor rate variance = $2,780 - $780 = $2,000 U

Actual rate of direct labor = $28,000 / 4000 = $7 per hour

(SR - AR) * AH = -$2,000

(SR - $7) * 4000 = -$2,000

SR = $6.50 per hour

Solution 2b:

Direct labor spending variance = Standard direct labor cost - Actual direct labor cost

Standard direct labor cost = Direct labor spending variance + Actual direct labor cost

= $2,780 U + $28,000 = $25,220

Standard hours allowed for month production = $25,220 /$6.50 = 3880 hours

Solution 2c:

standard hours allowed per unit of product = Total standard hours / Standard hours per unit

= 3880 / 2425 = 1.60 hour per unit