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 $59,040, all of which were used in the production of 3,000 units of product. In addition, 4,600 direct labor-hours were worked on the product during the month. The cost of this labor time was $34,500. The following variances have been computed for the month:

Materials quantity variance	$	4,200	U
Labor spending variance	$	3,900	U
Labor efficiency variance	$	680	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.

Answer 1

	Materials Quantity variance
	(AQ used - Std Qty allowed)*SR
	(x - 3000*3)*5 =4200U
	5x - 45000 = 4200U
	x	=(4200+45000)/5
		9840
a)	actual cost =		59040/9840
			6	per foot	answer
(
b)	Materials price variance
	(Actual rate - standard rate)*AQ purchased
	(6 - 5)*9840
	9840	U	answer
	Spending variance =		4200U+9840U
			14040	U	answer
2a)	labor spending varian				3,900	U
	labor efficiency varian				680	U
	labor price variance				3220	U
	labor rate variance = ( Actual rate - standard rate)*Actual hours
			(34500- x*4600)		=	3,220
			x =	(34500-3220)/4600
				6.8
	Standard hours		6.8	per hour
b)	Standard hours =
	labor efficiency variance
	(Actual hours - standard hours allowed)*Standard rate
	(4600 -x ) *6.8 = 680
	31280 - 6.8x = 680
	x                       = (31280-680)/6.8
		4500
	Standard hours allowed			4,500	hours
c)	Standard hours allowed per unit of product
	4500/3000
	1.5
	Standard hours allowed per unit of product				1.5	hours per unit