Question

Sharp Company manufactures a product for which the following standards have been set: Standard Quantity or Hours 3 feet ? hours Direct materials Direct labor Standard Price or Rate $5 per foot ? per hour Standard Cost $ 15 ? During March, the company purchased direct materials at a cost of $42,660, all of which were used in the production of 2,250 units of product. In addition, 4,600 direct labor-hours were worked on the product during the month. The cost of this labor time was $34,500. The following variances have been computed for the month: Materials quantity variance Labor spending variance Labor efficiency variance $ 1,800 u $ 3,000 U $ 700 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

1..For direct Material:

a) Actual cost per foot of material : Here standard quantity = 2250 units * 3 per unit = 6750

Let actual quantity = X

Material quantity variance = ( standard qty - actual quantity) * standard rate

- 1800 = ( 33750 - X ) * $ 5

-1800 = 33750 - 5X

5X = 33750 + 1800

X = 35550 / 5 = 7110.

Thus actual quantity of material used = 7110 foot.

Since total actual cost and actual quantity is known :

Thus Actual cost per foot of material = Total actual cost / Actual quantity  = $ 42660 / 7110

Actual cost per foot of material = $ 6 per foot

b) Material price variance = ( standard price - actual price ) * Actual qty

Material price variance = ( 5 - 6 ) * 7110

Material price / spending variance = 7110 U

2. For Direct Labor :

a) Standard direct labor rate per hour: Here actual rate = Actual cost /Actual  hours = $ 34500 / 4600 = 7.5 per hour

Actual rate per hour = $ 7.5 per hour , let standard rate = X

Labor spending variace = ( Standard rate - actual rate ) * Actual hours

-3000 = ( X - 7.5 ) * 4600

-3000 = 4600X - 34500

4600X = 34500 - 3000

4600X = 31500

X = 31500 / 4600 = 6.8478

Thus standard direct labor rate per hour = 6.85 ( Rounded off)

b) standard hours allowed for the months production :

Standard efficiency variance = ( Standard hours - actual hours ) * standard rate

- 700 = ( X - 4600 ) * 6.85

-700 = 6.85X - 31510

6.85X = 31510 - 700

X = 30810 / 6.85 = 4497.8 hours

Thus standard hours allowed for the months production = 4498 hours ( rounded off). Honestly it should  be 4500. differ due to round off.

C) standard hours allowed per unit :

Standard hours per unit = Total standard hours / total units

standard hours per unit = 4498 / 2250 = 2 per unit.

standard hours allowed per unit = 2 per unit. ( Rounded off)

Feel free to comment doubts if any..