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 $64,440, all of which were used in the production of 3,500 units of product. In addition, 5,000 direct labor-hours were worked on the product during the month. The cost of this labor time was $47,500. The following variances have been computed for the month: Materials quantity variance $ 1,200 U Labor spending variance $ 3,400 U Labor efficiency variance $ 900 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 = $1,200 U

(SQ - AQ)*SP = -$1,200

(3500*3 - AQ) * $5 = - $1,200

Actual quantity = 10740 Foot

Actual cost of purchase = $64,440

actual cost per foot = $64,440 / 10740 = $6 per foot

Solution 1b:

Material price variance = (SP - AP) * AQ = ($5 - $6) * 10,740 = $10,740 U

Material spending variance = MPV + MUV = $10,740 U + $1,200 U = $11,940 U

Solution 2a:

Actual rate of labor per hour = $47,500 / 5000 = $9.50 per hour

Labor rate variance = Labor spending variance - Labor efficiency variance = $3,400 U - $900 U = $2,500 U

(SR - AR) * AH = - $2,500

(SR - $9.50) * 5000 = - $2,500

SR = $9 per hour

Solution 2b:

Labor efficiency variance = (SH - AH) * SR = (SH - 5000) * $9 = - $900

Standard hours = 4900 hours

solution 2c:

Standard hours allowed per unit = 4900 / 3500 = 1.40 hour per unit.