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 or Hours Standard Price or Rate Standard Cost Direct materials 3 feet $ 5 per foot $ 15 Direct labor ? hours ? per hour ? During March, the company purchased direct materials at a cost of $56,650, all of which were used in the production of 3,250 units of product. In addition, 4,900 hours of direct labor time were worked on the product during the month. The cost of this labor time was $37,750. The following variances have been computed for the month: Materials quantity variance $ 3,750 U Labor spending variance $ 1,250 F Labor efficiency variance $ 200 U 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 (i.e., zero variance)). b. Compute the standard hours allowed for the month’s production.

Explanation / Answer

Labour spending variance = Labour efficiency variance + labour rate variance

$1,250 F = $200 U + labour rate variance

labour rate variance = $1,450 F

Std. material cost = $48,750 ($15*3250)

Material Spending variance = $7,900 U ($48,750 - $56,650)

hence, total spending variance = material spending variance + labour spending variance

total spending variance = $6,650 U ($7,900 U + $1,250F)

Std. rate*actual hrs - actual rate*Actual hrs = $1,450 F

std.rate*actual hrs - $37,750 = $1,450

Std.rate*actual hrs = $39,200

std rate = $9.8

Std. cost = std rate * std hrs

($37,750+$1,250) = $9.8 * std. hrs

std. hrs = 3,978 hrs

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