Question

Sharp Company manufactures a product for which the following standards have been set: Standard Quantity or Hours 3 feet ? hours Standard Price or Rate $5 per foot ? per hour Standard Cost $ 15 ? Direct materials Direct labor During March, the company purchased direct materials at a cost of $49,170, all of which were used in the production of 2,750 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 $36,000. The following variances have been computed for the month: Materials quantity variance Labor spending variance Labor efficiency variance $ 3,450 U $ 3,000 U $ 750 U

Answer 1

1. for direct material:

a.) Material quantity variance = (Actual usage in units - Standard usage in units) x Standard cost per unit

                                3450 =(Actual usage of units- 2750*3)*5

                               3450/5 =Actual usage of units -8250

              Actual usage of units = 8940 units

       Price per unit of material =Total purchase cost/ total units

                                        = 49170/8940

                                        =5.5 per unit

b.) material price variance = (Actual Quantity Purchased * Actual Unit Cost) - (Actual Quantity Purchased * Standard Unit Cost)

=(8940*5.5)-(8940-5)     =4470 unfavourable

material spending variance = Material price variance + material quantity variance

                                          =4470 unfavourable + 3450 unfavourable

                                         = 7920 unfavourable

2. For direct labour.

a.)Labour spending variance = Actual labour cost - Standard labour cost

   3000 =36000 - standard cost

Standard cost = 36000-3000 =33000

Labour efficiency variance = ( actual hour*stanadard rate - standard hour* standard rate)

750=4500* standard rate -33000

standard rate =(33000+750)/4500 =7.5 per hour

Now, standrad hours = standard cost/ standard rate =33000/7.5 = 4400 hrs

b.) standard hours for production = standard cost/ standard rate =33000/7.5 = 4400 hrs

c.) Standard hour per unit of production = Standard hours/ actual units of production =4400/2750 =1.6 hr per unit