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	$	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.

Answer 1

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.