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 $52,740, all of which were used in the production of 2,750 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 $40,500. The following variances have been computed for the month:

Materials quantity variance	$	2,700	U
Labor spending variance	$	3,100	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

-2700 = (2750*3*5-5X)

5X = 41250+2700

X(actual qty) = 43950/5 = 8790

Actual cost per foot = 52740/8790 = 6

1b) Material price variance = (5-6)*8790 = 8790 U

Material spending variance = (2750*15-52740) = 11490 U

2a) Labor rate variance = 3100-850 = 2250 U

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

-2250 = (X*4500-40500)

-4500X = -38250

X(Standard rate) = 8.5

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

-850 = (X*8.5-4500*8.5)

8.5X = 37400

X(Standard hour) = 4400 Hour

2c) Standard hour per unit = 4400/2750 = 1.60 hour per unit