Question

Problem 10-11 (Algo) Direct Materials and Direct Labor Variances: Computations from Incomplete Data [LO10-1, LO10-2) Sharp Company manufactures a product for which the following standards have been set: Standard Quantity or Hours 3 feet ? hours Standard Standard Price Cost or Rate $5 per foot $15 ? per hour Direct materials Direct labor During March, the company purchased direct materials at a cost of $52,965, all of which were used in the production of 2,920 units of product. In addition, 4,500 direct labor hours were worked on the product during the month. The cost of this labor time was $31,500. The following variances have been computed for the month Materials quantity variance Labor spending variance Labor efficiency variance $4,350 U $3,030 U $ 780 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 = $4,350 U

(SQ - AQ)*SP = -$4,350

(2920*3 - AQ) * $5 = - $4,350

Actual quantity = 9630 Foot

Actual cost of purchase = $52,965

actual cost per foot = $52,965 / 9630 = $5.50 per foot

Solution 1b:

Material price variance = (SP - AP) * AQ = ($5 - $5.50) * 9630 = $4,815 U

Material spending variance = MPV + MUV = $4,815 U + $4,350 U = $9,165 U

Solution 2a:

Actual rate of labor per hour = $31,500 / 4500 = $7 per hour

Labor rate variance = Labor spending variance - Labor efficiency variance = $3,030 U - $780 U = $2,250 U

(SR - AR) * AH = - $2,250

(SR - $7) * 4500 = - $2,250

SR = $6.50 per hour

Solution 2b:

Labor efficiency variance = (SH - AH) * SR = (SH - 4500) * $6.50 = - $780

Standard hours = 4380 hours

solution 2c:

Standard hours allowed per unit = 4380 / 2920 = 1.50 hour per unit.