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 $45,210, all of which were used in the production of 2,500 units of product. In addition, 4,100 hours of direct labor time were worked on the product during the month. The cost of this labor time was $30,750. The following variances have been computed for the month:

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

Required: 1. For direct materials: a. Compute the actual cost per foot for materials for March. (Round your answer to 2 decimal places.) Act ual cost foot b. Compute the price variance and the spending variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (l.e., zero variance)) Spending 2. For direct labor: (Do not round intermediate calculations.) a. Compute the standard direct labor rate per hour. Round your final answer to 2 decimal places.) tandard direct labor rate er hour b. Compute the standard hours allowed for the month's production. Standard hours c. Compute the standard hours allowed per unit of product. (Round your answer to 1 decimal place.) Standard unit

Explanation / Answer

1) a) Std Qty for Actual Production = 2,500 units*3 feet per unit = 7,500 feet

Materials Quantity Variance = (Std Qty - Actual Qty)*Std Price

$3,600 U = (7,500 - AQ)*$5

-$3,600/$5 = 7,500 - AQ

AQ = 7,500+720 = 8,220 feet

Actual quantity used is 8,220 feet and total cost of materials used is $45,210, Therefore Actual cost per foot of material is $5.50 ($45,210/8,220 feet).

Thus Actual cost is $5.50 per foot.

1) b) Materials Price Variance = (Std Price - Actual Price)*Actual Qty

= ($5.00 - $5.50)*8,220 = ($4,110) U

Materials Spending Variance = Std Cost for Actual Production - Actual Cost

= (2,500 units*$15 per unit) - $45,210

= $37,500 - $45,210 = ($7,710) U

2) a) Labor Spending Variance = Std Cost for Actual Production - Actual Cost

-$2,750 = Std Cost for Actual Production - $30,750

Std Cost for Actual Production = $30,750 - $2,750 = $28,000

Actual labor rate per hour = Actual Labor Cost/Actual Labor hrs

= $30,750/4,100 hrs = $7.50 per hour

Labor Rate Variance = Labor Spending Variance - Labor Efficiency Variance

= $2,750 U - $700 U = $2,050 U

Labor Rate Variance = (Std Rate - Actual Rate)*Actual Hrs

-$2,050 = (Std Rate - $7.50)*4,100 hrs

-$2,050/4,100 hrs = Std Rate - $7.50

-$0.50 = Std Rate - $7.50

Std Rate = $7.50 - $0.50 = $7.00 per hr

Therefore the standard direct labor rate is $7.00 per hour.

2) b) Standard Cost for Actual Production = $28,000 (as calculated in part 2a)

Standard hours allowed for the month's production = Std Cost for Actual prod./Std Labor rate

= $28,000/$7.00 = 4,000 hrs

2) c) Standard hour allowed per unit = Std hrs allowed for Actual Production/Actual Production

= 4,000 hrs/2,500 units = 1.6 hrs per unit

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