Problem 9-25 Direct Materials and Direct Labor Variances; Computations from Incomplete Data [LO9-4, LO9-5]
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 $59,040, all of which were used in the production of 3,000 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 | $ | 4,200 | U |
Labor spending variance | $ | 3,900 |
U |
Labor efficiency variance | $ | 680 |
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.
Solution 1a (Sharp Company):
Material quantity variance = $4,200 U
(SQ - AQ)*SP = -$4,200
(3000*3 - AQ) * $5 = - $4,200
Actual quantity = 9840 Foot
Actual cost of purchase = $59,040
actual cost per foot = $59040 / 9840 = $6.00 per foot
Solution 1b:
Material price variance = (SP - AP) * AQ = ($5 - $6) * 9840 =
$9,840 U
Material spending variance = MPV + MUV = $9840 U + $4200 U =
$14,040 U
Solution 2a:
Actual rate of labor per hour = $34,500 / 4600 = $7.50 per
hour
Labor rate variance = Labor spending variance - Labor efficiency
variance = $3,900 U - $680 U = $3,220 U
(SR - AR) * AH = - $3220
(SR - $7.50) * 4600 = - $3220
SR = $6.80 per hour
Solution 2b:
Labor efficiency variance = (SH - AH) * SR
(SH - 4600) * $6.80 = - $680
Standard hours = 4500 hours
solution 2c:
Standard hours allowed per unit = 4500 / 3000 = 1.50 hour per
unit.
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