Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Inc

Question

Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Incomplete Data [LO10-1, LO10-2]

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

During March, the company purchased direct materials at a cost of $44,100, all of which were used in the production of 2,350 units of product. In addition, 4,800 direct labor-hours were worked on the product during the month. The cost of this labor time was $40,800. The following variances have been computed for the month:

U

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.

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

AQ = Actual Quantity SQ = Standard Quantity AP = Actual Price SP = Standard Price AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate Requirement 1 for direct materials a. Actual Cost per foot of materials for March Material Quantity Variance (Standard Quantity for Actual Output - Actual Quantity) X Standard Price 1500 U = [7050 - AQ] X 5 -1500/5 = 7050-AQ AQ =   7050+300 =7350 Actual cost per foot =44100/7350 = $6 per Foot Requirement 1-b Material Price Variance (Standard Price - Actual Price) X Actual Quantity Consumed = [5 - 6] X 7350 = 7,350 Unfavourable Material Spending Variance = Material Price Variance + Material Quantity variance = 7350 U + 1500U = 8850 U Requirement 2 for direct labour a. Standard direct labour rate per hour Labour Spending variance = Labor rate variance +Labor Efficiency variance 3200 U =labor rate variance + 800 U Labour Rate Variance = 2400 Unfavourable Labour Rate Variance (Standard rate - Actual rate) X Actual Hours Labour Rate Variance = SRXAH -ARXAH 2400 U = SRX4800 -40800 40800-2400 = SRX4800 Standard Rate = 38,400/4800 = $8 per Hour Requirement 2-b Labour Efficiency Variance (Standard Hours for Actual Output - Actual Hours worked ) X Standard rate 800U = (Standard Hours for Actual Output -4800 ) X $8 800 U/ $8 = Standard Hours for Actual Output -4800 Standard Hours for Actual Output =-100 + 4800 Standard Hours for Actual Output = 4,700 Requirement 2-c Standard hours allowed per unit of prouduct = 4,700Hours /2,350 units                                                               =   2 hours per unit of product

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