Question

harp 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 $57,090, all of which were used in the production of 3,400 units of product. In addition, 5,200 direct labor-hours were worked on the product during the month. The cost of this labor time was $54,600. The following variances have been computed for the month:

Materials quantity variance	$	900	U
Labor spending variance	$	3,600	U
Labor efficiency variance	$	1,000	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

Computation of Standard Direct material cost allowed for actual output :-
a	Actual output			3400	units
b	Standard Direct materials quantity per unit			3	Feet
c	Standard Direct materials quantity for actual output (a*b)			10200	Feet
d	Standard Direct materials price per foot			$        5.00	per foot
e	Standard Direct materials cost for Standard Direct materials Quantity for actual output (c*d)			$   51,000
1.a .Computation of actual cost per foot of materials for March :-
a	Standard Direct materials cost for Standard Direct materials Quantity for actual output (c*d)			$    51,000
b	Materials quantity variance			$         900	Unfavorable
c	Standard Direct materials cost for actual Direct materials quantity purchased and used			$    51,900
d	Standard Direct materials price per foot			$        5.00	per foot
d	Actual Direct material quantity purchased and used (c/d)			10,380	Feet
e	Actual Direct material Purchase Cost			$    57,090
f	Actual cost per foot of materials (e/d)			$        5.50	per foot
1.b .Computation of price variance and the spending variance :-
a	Actual Direct material Purchase Cost			$    57,090
b	Standard Direct materials cost for actual Direct materials quantity purchased and used			$    51,900
c	Price variance and the spending variance (a-b)			$      5,190	Unfavorable
Verification of variances :-
a.
Direct materials price variance :-
Direct materials price variance	=	Actual quantity purchased	× (	Actual Price	-	Standard Price	)
	=	10,380	× (	5.50	-	5.00	)
	=	10380	×	0.50
	=	$5,190		Unfavorable
Direct materials quantity variance :-
Direct materials quantity variance	=	Standard Price	× (	Actual quantity	-	Standard quantity	)
	=	5.00	× (	10380	-	10200	)
	=	5.00	×	180	-
	=	$900		Unfavorable
2.a. Computation of the standard direct labor rate per hour :-
a	Actual labor cost for Actual hours used			$   54,600
b	Actual labor hours worked			5200	hours
c	Actual direct labor rate per hour (a/b)			$      10.50
d	Labor spending variance			$      3,600	Unfavorable
e	Standard labor cost for Actual hours used   (a-d)			$   51,000
f	Standard labor rate per hour (e/b)			$        9.81	per hour
2.b. Computation of the standard hours allowed for the month’s production :-
a	Standard labor cost for Actual hours used			$   51,000
b	Labor efficiency variance			$      1,000	Unfavorable
c	Standard labor cost for Standard hours for actual output (a-b)			$   50,000
d	Standard labor rate per hour			$        9.81	per hour
e	Standard hours allowed for the month’s production (c/d)			5,098	hours	s
2.b. Computation of the standard hours allowed per unit of product :-
a	Standard hours allowed for the month’s production			$      5,098
b	Actual output			3,400	units
c	Standard hours allowed per unit of product (a/b)			1.50	per hour
Verification of answer
Direct labor Spending variance :-
Direct labor rate variance	=	Actual labor hours	× (	Actual Rate	-	Standard Rate	)
	=	5,200	× (	$      10.50	-	$      9.81	)
	=	5,200	×	0.69
	=	$3,600		Unfavorable
Direct labor efficiency Variance :-
Direct labor Efficiency Variance	=	Standard Rate	× (	Actual labor hours	-	Standard labor hours	)
	=	9.81	× (	5,200	-	5098	)
	=	9.81	×	101.96
	=	$1,000		Unfavorable

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