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 beern computed for the month: Materials quantity variance Labor spending variance Labor efficiency variance $ 900 U $3,600 U $1,000 U

Explanation / Answer

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

$900 U = [(3,400 units*3 feet) - Actual Qty]*$5 per foot

-$900 = (10,200 feet - Actual Qty)*$5

-$900/$5 = 10,200 feet - Actual Qty

Actual Qty = 10,200+180 = 10,380 feet

Actual cost per foot = Actual Materials cost/Actual Qty

= $57,090/10,380 feet = $5.50 per foot

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

= ($5 - $5.50)*10,380 = ($5,190) U

Materials Spending Variance = Standard Materials Cost - Actual Materials Cost

= (10,200 feet*$5) - (10,380 feet*$5.50)

= $51,000 - $57,090 = ($6,090) U

2a) Labor Price Variance = Labor Spending Variance - Labor Efficiency Variance

= $3,600 U - $1,000 U = $2,600 U

Actual rate per hour = Actual Labor Cost/Actual Hours

= $54,600/5,200 hours = $10.50 per hour

Labor Price Variance = (Std Rate - Actual Rate)*Actual hours

$2,600 U = (Std Rate - $10.50)*5,200 hrs

- $2,600/5,200 hrs = Std Rate - $10.50

Std Rate = $10.50 - (2,600/5,200)

= $10.50 - $0.50 = $10 per hour

Therefore standard direct labor rate per hour is $10 per hour

2b) Labor Efficiency Variance = (Std Hours allowed - Actual Hours)*Std Rate

$1,000 U = (Std Hrs allowed - 5,200 hrs)*$10

-$1,000/$10 = Std Hrs allowed - 5,200 hrs

  Std Hrs allowed = 5,200 hrs - 100 hrs = 5,100 hrs

Therefore total standard hours allowed for the month is 5,100 hours.

2c) Standard Hour allowed per unit = Total Standard hours allowed/Actual units

= 5,100 hours/3,400 units = 1.5 hours per unit

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