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 $45,375, all of which were used in the production of 2,350 units of product. In addition, 4,800 direct labor-hours were worked on the product during the month. The cost of this labor time was $50,400. 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. Actual cost per foot = $6.05

b. Price variance = $7,875 U , Spending Variance = $10,125 U

Working:

2.

a. $10.00 per hour

b. 4,700 hours

c. 2 hours per unit

Working:

Material Quantity Variance = (SQAP - AQ) X SP where SQAP = Standard quantity for actual production = 2350 x 3 = 7,050 (7,050 - AQ ) x 5 = -2,250 7,050 - AQ = -450 AQ = 7,050+450 = 7,500 Actual cost of material = 45,375 Actual Price = 45375/7500 = $6.05 Material price variance = (SP - AP ) x AQ = (5 - 6.05) x 7,500 =7875 U Material Spending Variance = 2250 U + 7875 U = 10,125 U Checking: Actual cost of material used = 45,375 Standard cost of material = 2,350 x 15 = $35,250 Material Spending Variance = 35,250 - -45,375 = 10,125 U

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