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:

During March, the company purchased direct materials at a cost of $45,180, all of which were used in the production of 2,290 units of product. In addition, 4,700 direct labor-hours were worked on the product during the month. The cost of this labor time was $32,900. 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

1.a. Materials quantity variance = SP (AQ – SQ)

$5.00 per foot (AQ – (2290*3)) = $3300 U

$5.00 per foot × AQ – $34350 = $3300*

$5.00 per foot × AQ = $37,650

AQ = 7530 feet

*When we use the formula, unfavorable variances are positive and favorable variances are negative.

Therefore, $45,180 ÷ 7530 feet = $6.00 per foot.

b.   Materials price variance = AQ (AP – SP)

7530 feet ($6.00 per foot – $5.00 per foot) = $7530 F

The total variance for materials would be:

Materials price variance………………………………

$   7530

U

Materials quantity variance………………………….

3300

U

Total variance…………………………………………….

$10830

U

2.   a.   Labor rate variance = AH (AR – SR)

4700 hours ((32900/4700) – SR)) = $3910 F*

4700 hours ($7 per hour – SR) = $3910F

$32900 -4700 hours × SR = -$3910*

4500 hours × SR = $36810

SR = $8.18 per hour

*

Total labor variance……………………………………………………….

$   3130

U

Labor efficiency variance………………………………………………

780

U

Labor rate variance……………………………………………………….

$3910

F

*

When used with the formula, unfavorable variances are positive and favorable variances are negative.

b.   Labor efficiency variance = SR (AH – SH)

$8.18 per hour (4700 hours – SH) = $780 U

$38446 – $8.18 per hour × SH = $780*

$8.18 per hour × SH = $37666

SH = 4605 hours

*

When used with the formula, unfavorable variances are positive and favorable variances are negative.

.

c. The standard hours allowed per unit of product would be:

4605 hours ÷ 2290 units = 2.01 hours per unit

*When we use the formula, unfavorable variances are positive and favorable variances are negative.

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