Question

Sharp Company manufactures a product for which the following standards have been set: Standard Quantity or...

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 $53,730, all of which were used in the production of 2,875 units of product. In addition, 4,700 direct labor-hours were worked on the product during the month. The cost of this labor time was $37,600. The following variances have been computed for the month:

Materials quantity variance $ 1,650 U
Labor spending variance $ 3,100

U

Labor efficiency variance $ 750

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.

Homework Answers

Answer #1

Solution

Solution 1a (Sharp Company):

Material quantity variance = $1650 U

(SQ - AQ)*SP = -$1650

(2875*3 - AQ) * $5 = - $1650

Actual quantity = 8955 Foot

Actual cost of purchase = $53,730

actual cost per foot = $53,730 / 8955 = $6 per foot

Solution 1b:

Material price variance = (SP - AP) * AQ = ($5 - $6) * 8955 = $8955 U

Material spending variance = MPV + MUV = 8955 U + $1650 U = $10,605 U

Solution 2a:

Actual rate of labor per hour = $37600 / 4700 = $8 per hour

Labor rate variance = Labor spending variance - Labor efficiency variance = $3,100 U - $750 U = $2,350 U

(SR - AR) * AH = - $2350

(SR - $8) * 4700 = - $2350

SR = $7.5 per hour

Solution 2b:

Labor efficiency variance = (SH - AH) * SR = (SH - 4700) * $7.5 = - $750

Standard hours = 4600 hours

solution 2c:

Standard hours allowed per unit = 4600 / 2875 = 1.60 hour per unit.

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