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 \$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.

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.