Sharp Company manufactures a product for which the following standards have been

Question

Sharp Company manufactures a product for which the following standards have been set:

During March, the company purchased direct materials at a cost of $57,510, all of which were used in the production of 3,125 units of product. In addition, 5,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $51,000. The following variances have been computed for the month:

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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.

Standard Quantity
or Hours Standard Price
or Rate Standard
Cost Direct materials 3 feet $ 5 per foot $ 15 Direct labor ? hours ? per hour ?

Explanation / Answer

1 (a) : Computation of actual cost of per foot of materials for March:

From data gien in question, actual cost per unit of material= 57,510/ 3125 = $ 18.40

Thus, cost per foot= 18.40/ 3= $ 6.13 per foot

(b): Computation of price variance and total spending variance:

Price variance = (Actual rate- Std rate)* Actual qty

= (18.40-15)*3125

= $ 10,625

Total spending variance= Price ariance+Quantity variance

= 10625+1050

= $ 11,675

2. (a): Computation of standard direct labour rate per hour:

From question:

Labour spending variance= $3,500

Actual spending- Standard spending = $ 3,500

Let standard rate per hour be x and standard hours are y

Thus,

(51,000 - x*y) = 3500

or, xy= 47,500 --------------------- eq (i)

Now, labour efficiency variance = $ 950

(Actual hours- Standard hours) * Standard rate= 9500

( 51,00 - y)* x = 9,50

5100x - xy= 950

Putting the value of xy from above (i) equation:

5100x- 47500= 950

5100x= 48450

x= 9.5

Thus, standard direct labour rate per hour= $9.5 per hour

(b) Computation of standard hours per hour of production:

Putting the value of x in equation (i) in step above:

xy = 47,500

9.5y = 47,500

y = 5000

Standard hours = 5,000  

(c) Standard hours allowed per unit of product:

= 5000/ 3125 = 1.6 hours per unit of product

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