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: Standard Quantity Standard Price Standard Direct materials Direct labor or Hours 3 feet or Rate $5 per foot ? per hour Cost $ 15 hours During March, the company purchased direct materials at a cost of $55,650, all of which were used in the production of 3,200 units of product. In addition, 4,900 direct labor-hours were worked on the product during the month. The cost of this labor time was $36,750. The following variances have been computed for the month Materials quantity variance Labor spending variance Labor efficiency variance 4,500 U 3,150 U $700 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.

Explanation / Answer

1A). Direct Material Quantity Variance = (Std Quantity - Actual Quantity)* Std. Rate
(4500) = (3200*3 - Actual Qty)*5
(900) = 9600 - Actual Qty
Actual Qty = 10500 foot of Direct Material

Cost per foot = 55650/10500 = 5.3 per foot

1B). Direct Materila Price Variance = (Std Rate - Actual Rate) * Actual Qty
(5 - 5.30)*10500 = 3150 U

Direct Materila Spending Variance = Std cost - Actual Cost = 9600*5 - 55650 = 7650 U

2A) Labour Rate Variance = Labour spending Variance - Labour Efficiency Variance
=3150-700= 2450 U
Labour Rate Variance = ( Std. Rate - Actual Rate) * Actual Hrs = 2450 U
(Std. RAte - 36750/4900) * 4900 = 2450 U
Std. Rate = 7 per hour

Labour spending Variance = ( Std. cost for Actual Production - Actual Cost ) = 3150 U
Std. Cost for Actual Production = -3150+36750 = 33600
Std Rate Per unit = 33600/3200units = 10.5
Std hours per unit = 10.5/7 = 1.5 hrs per unit.
Std hours allowed for months production = 3200 * 1.5 = 4800 hrs

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