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 \$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.

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.

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