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 $42,660, all of which were used in the production of 2,250 units of product. In addition, 4,600 direct labor-hours were worked on the product during the month. The cost of this labor time was $34,500. The following variances have been computed for the month:

Materials quantity variance	$	1,800	U
Labor spending variance	$	3,000	U
Labor efficiency variance	$	700	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 1a:

Material quantity variance = $1,800 U

(SQ - AQ)*SP = -$1800

(2250*3 - AQ) * $5 = - $1,800

Actual quantity = 7110 Foot

Actual cost of purchase = $42,660

actual cost per foot = $42,660 / 7110 = $6 per foot

Solution 1b:

Material price variance = (SP - AP) * AQ = ($5 - $6) * 7110 = $7,110 U

Material spending variance = MPV + MUV = $7,110 U + $1,800 U = $8,910 U

Solution 2a:

Actual rate of labor per hour = $34,500 / 4600 = $7.50 per hour

Labor rate variance = Labor spending variance - Labor efficiency variance = $3,000 U - $700 U = $2,300 U

(SR - AR) * AH = - $2,300

(SR - $7.50) * 4600 = - $2,300

SR = $7 per hour

Solution 2b:

Labor efficiency variance = (SH - AH) * SR = (SH - 4600) * $7 = - $700

Standard hours = 4500 hours

solution 2c:

Standard hours allowed per unit = 4500 / 2250 = 2 hour per unit.