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: Standard Quantity Standard Price Standard or Hours 3 feet ? hours Cost $15 or Rate $5 per foot Direct materials Direct labor ? per hour During March, the company purchased direct materials at a cost of $57,090, all of which were used in the production of 3,400 units of product. In addition, 5,200 hours of direct labor time were worked on the product during the month. The cost of this labor time was $54,600. The following variances have been computed for the month Materials quantity variance Labor spending variance Labor efficiency variance $900 U $3,600 U $1,000 U Required: 1. For direct materials a. Compute the actual cost per foot for materials for March. (Round your answer to 2 decimal places.) Actual cost per foot

Explanation / Answer

Answers

SQ/AQ = Standard Quantity / Actual Quantity
SR/AR = Standard rate / Actual rate
SH/AH = Standard hours / Actual Hours

Actual output = 3400 units
SQ for actual output = 3400 units x 3 feet = 10,200 feet
SR = $5 per foot.

Material Quantity Variance (MQV) = (SQ – AQ) x SR
- 900 = (10200 feet – AQ) x $5 per foot
-900 = 51000 – 5AQ
5AQ = 51000 + 900
AQ = 51900 / 5
AQ = 10,380 feet

Actual quantity of material = 10,380 feet (AQ)
Actual cost of material = $57,090

Hence, Actual cost per foot for material = 57090/10380 = $5.5 per foot.

Material Price variance = (SR – AR) x AQ
= ($5 per foot - $5.5 per foot) x 10380 feet
= - 5190

$5190 Unfavourable

Material Spending Variance = material Price Variance + material quantity variance

= 5190 Unfavourable + 900 Unfavourable
=$6,090 Unfavourable

Labor Spending Variance = labor Efficiency variance + labor rate variance
$3600 U = $1000 U + Labor rate Variance
-3600 = -1000 + LRV
-3600 + 1000 = LRV
Labor Rate variance (LRV) = $2600 Unfavourable

AH = 5200 hours
Actual Labor cost = $54600
AR = 54600 / 5200 = $10.5 per hour

Standard Cost of Labor = Actual Cost of Labor +/- Labor Spending Variance
Standard cost of Labor = $54,600 - $3600 = $51,000

Hence, Standard cost = $51,000

Answer 2 (a)

LRV = (SR – AR) x AH
- 2600 = (SR - $10.5) x 5200
-2600 = 5200SR – 54600
-2600 + 54600 = 5200SR
52000/5200 = SR
SR = $10 per hour

Standard direct labor rate per hour = $10 per hour

Answer 2(b)

Labor Efficiency variance = (SH – AH) x SR
-1000 = (SH – 5200 hours) x $10
-1000 = 10SH – 52000
-1000 + 52000 = 10SH
SH = 51000 / 10
SH (Standard hours allowed) = 5100 hours

Answers 2 (c )

Standard hours allowed = 5100 hours
Actual Units = 3400 units

Standard hours allowed per unit = 5100 / 3400 = 1.5 hours per unit

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