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 \$ 11 per foot \$ 33 Direct labor ? hours ? per hour ?

During March, the company purchased direct materials at a cost of \$111,300, 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 \$95,550. The following variances have been computed for the month:

 Materials quantity variance \$ 4,400 U Labor spending variance \$ 450 F Labor efficiency variance \$ 2,000 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 = \$4,400 U

(SQ - AQ)*SP = -\$4,400

(3200*3 - AQ) * \$11 = - \$4,400

Actual quantity = 10000 Foot

Actual cost of purchase = \$111,300

actual cost per foot = \$111,300 / 10000 = \$11.13 per foot

Solution 1b:

Material price variance = (SP - AP) * AQ = (\$11 - \$11.13) * 10000 = \$1,300 U

Material spending variance = MPV + MUV = \$1,300 U + \$4,440 U = \$5,700 U

Solution 2a:

Actual rate of labor per hour = \$95,550 / 4900 = \$19.50 per hour

Labor rate variance = Labor spending variance - Labor efficiency variance = \$450 F - \$2,000 U = \$2,450 F

(SR - AR) * AH = \$2,450

(SR - \$19.50) * 4900 = \$2,450

SR = \$20 per hour

Solution 2b:

Labor efficiency variance = (SH - AH) * SR = (SH - 4900) * \$20 = - \$2,000

Standard hours = 4800 hours

solution 2c:

Standard hours allowed per unit = 4800 / 3200 = 1.50 hour per unit.