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: Direct materials Direct labor Standard Quantity Standard Price Standard or Hours or Rate Cost 3 feet $5 per foot $ 15 7 hours ? per hour During March, the company purchased direct materials at a cost of $60,885, 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 $42,500. The following variances have been computed for the month: Materials quantity variance Labor spending variance Labor efficiency variance $ 2,850 U $ 3.300 U $ 800 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

Answer 1. a.   Actual Cost Per Foot for material for March

Materials quantity variance = (Actual Quantity – Standard Quantity ) x Stardard Price
$2850 = (Actual Quantity - (3500 units x 3 feet per units)) x $5
$2850 = ( Actual Quantity - 10500 Feet) x $5
2850/5 = Actual Quantity - 10500
570 = Actual Quantity - 10500
Actual Quantity = 11070 feet

Actual Cost Per Feet = Actual Cost of Material/ Actual Quantity
                                  = 60885/ 11070
                                 = $5.5 per Feet

When we use the formula, unfavorable variances are positive and favorable variances are negative.

Answer 1. b

Material Price Variance = (Actual Price – Standard Price ) Actual Quantity
                                        = ($5.5 - $5 ) 11070 feet
                                       = $5535 U

Spending Variance = Actual Price x Actual Quantity - Standard Price x Standard Quantity
                                 = $ 60885 - (5 x 3500 x 3)
                                 = $60885 - $52500
                                 = $8385

Answer 2 a)

Labour Rate Variance = labor Spending variance - Labour Efficiency variance
                                    = 3300U - 800 U
                                    = $2500 U

Labour Rate Variance = (Actual Rate - Standard Rate ) x Actual Hour
$2500        = ($42500/5000 hours - Standard Rate) x 5000 hours
2500/5000 = 8.5 - Standard Rate

Standard Rate = $8 Per Hour

Answer 2 b)

Labour Efficiency Variance = (Actual Hours - Standard Hours ) Standard Rate
800 = (5000 - Standard Hours) 8
800/8 = (5000 - Standard Hours)
100 =(5000 - Standard Hours)

Standard Hours = 4900 Hours

Answer 2 c)

The standard hours allowed per unit of product = 4900 Hours / 3500 Units
    = 1.4 Hours per unit