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 $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.

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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