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 $57,510, all of which were used in the production of 3,125 units of product. In addition, 5,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $51,000. The following variances have been computed for the month:

Materials quantity variance	$	1,050	U
Labor spending variance	$	3,500	U
Labor efficiency variance	$	950	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

-1050 = (3125*3*5-5X)

5X = 46875+1050

X(Actual foot) = 9585 foot

actual cost per foot = 57510/9585 = 6 per foot

1b) Material price variance = (5-6)*9585 = 9585 U

Material spending variance = (3125*15-57510) = 10635 U

2a) Labor rate variance = 3500-950 = 2550 U

Labor rate variance = (SR-AR)AH

-2550 = (X*5100-51000)

-5100X = -48450

X(Standard rate per hour) = 9.50

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

-950 = (X*9.50-5100*9.5)

-9.5X = -47500

X(Standard hour) = 5000 Hour

2c) Standard hour per unit = 5000/3125 = 1.60 hour per unit