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 $60,120, all of which were used in the production of 3,200 units of product. In addition, 4,900 direct labor-hours were worked on the product during the month. The cost of this labor time was $53,900. The following variances have been computed for the month:

Materials quantity variance	$	2,100	U
Labor spending variance	$	3,500	U
Labor efficiency variance	$	1,050	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

-2100 = (3200*3*5-5X)

5X = 48000+2100

X( Actual qty) = 50100/5 = 10020 Foot

Actual cost per foot = 60120/10020 = 6 per foot

1b) Material price variance = (5-6)*10020 = 10020 U

Material spending variance = (3200*15-60120) = 12120 U

2a) Labor rate variance = 3500-1050 = 2450 U

Labor rate variance = (SR-AR)SH

-2450 = (X*4900-53900)

-4900X = -51450

X(Standard rate) = 10.50 per hour

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

-1050 = (X*10.50-4900*10.50)

-10.50X = -50400

X(Standard hour) = 4800 Hour

2c) Standard hour allowed per unit = 4800/3200 = 1.50 hour per unit