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	$	5	per foot	$	15
Direct labor	?	hours		?	per hour		?

During March, the company purchased direct materials at a cost of $54,285, 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 $44,100. The following variances have been computed for the month:

Materials quantity variance	$	1,350	U
Labor spending variance	$	3,300	U
Labor efficiency variance	$	850	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 1:

Direct material quantity variance = $1,350 U

(SQ - AQ) * SP = -$1,350

(3200 * 3 - AQ) * $5 = -$1,350

= Actual quantity of material purchased = 9870 units

Actual price of direct material = $54,285 / 9870 = $5.50 per unit

Direct material price variance = (SP - AP) * AQ = ($5 - $5.50)* 9870 = $4,935 U
Direct material spending variance = Direct material price variance + direct material quantity variance

= $4,935 U + $1,350 U = $6,285 U

Solution 2:

Labor spending variance = $3,300U

Labor efficiency variance = $850 U

Direct labor rate variance = $3,300 - $850 = $2,450 U

Actual direct labor cost = $44,100

Actual direct labor hours= 4900

Actual rate of direct labor = $44,100 / 4900 = $9 per hour

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

(SR - $9)*4900 = -$2,450

Standard rate of direct labor = $8.50 per hour

Standard direct labor cost = $44,100 - $3,300 = $40,800

Standard hours allowed for month production = $40,800 / $8.50 = 4800 hours

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