Question

Sharp Company manufactures a product for which the following standards have been set:

Standard Quantity Standard Price Standard
or Hours or Rate 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 $44,100, all of which were used in the production of 2,350 units of product. In addition, 4,800 hours of direct labor time were worked on the product during the month. The cost of this labor time was $40,800. The following variances have been computed for the month:

Materials quantity variance $1,500 U
Labor spending variance $3,200 U
Labor efficiency variance $800 U

1. For direct materials:
a. Compute the actual cost per foot for 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

Answer:

1. a) $6 per foot

1 b) Material Price Variance = $7,350 U

Material Spending Price = $8,850 U

2 a) Standard labor rate = $8 per hour

b) Standard Hour = 4,700 hours

c) 2 hours per unit

Explanation:

Requirement 1 (A)

We know,

Materials quantity variance = (Actual Quantity - Standard Quantity) × Standard Price

Given,

Materials quantity variance = $1,500 Unfavorable

Actual Quantity = ?

Standard Quantity = Actual production (unit) × Standard Materials per foot = 2,350 units × 3 feet = 7,050

Standard Price = $5 per foot

Therefore,

$1,500 U = (Actual Quantity - 7,050) × $5 per foot

or, $1,500 U ÷ $5 per foot = (Actual Quantity - 7,050)

or, 300 U = (Actual Quantity - 7,050)

or, 300 + 7,050 = Actual Quantity

Hence, Actual Quantity = 7,350 feet

Therefore, Actual Cost = Direct Materials ÷ Actual Quantity = $44,100 ÷ 7,350 feet = $6 per foot.

Requirement 1 (B)

We know,

Material Price Variance = (Actual Price - Standard Price) × Actual Quantity

Given,

Actual Price/Cost = $6 per foot (From Requirement 1 a)

Standard Price/Cost = $5 per foot

Actual Quantity = 7,350 feet (From Requirement 1 a)

Therefore,

Material Price Variance = ($6 per foot - $5 per foot) × 7,350 feet = $7,350 Unfavorable (Because actual cost is high)

Again,

Material Spending Price = Materials quantity variance + Material Price Variance = $1,500 U + $7,350 U = $8,850 U.

Requirement 2 (A)

We know,

Labor rate variance = (Actual labor rate - Standard labor rate) × Actual Hour

We also know, Labor spending variance = Labor rate variance + Labor efficiency variance

$3,200 U = Labor rate variance + $800 U

or, Labor rate variance = $3,200 U - $800 U

Labor rate variance = $2,400 U

Given,

Standard labor rate = ?

Actual labor rate = Direct labor ÷ Direct labor hour

Actual labor rate = $40,800 ÷ 4,800 hours = $8.5 per hour

Actual Hour = 4,800 hours

Therefore,

$2,400 U = ($8.5 per hour - Standard labor rate) × 4,800 hours

or, $2,400 U ÷ 4,800 hours = $8.5 per hour - Standard labor rate

or, $0.5 = $8.5 per hour - Standard labor rate

or, Standard labor rate = $8.5 per hour - $0.5 = $8 per hour.

Requirement 2 (B)

We know,

Labor efficiency variance = (Actual Hour - Standard Hour) × Standard labor rate

Given,

Standard Hour = ?

Actual Hour = 4,800 hours

Standard labor rate = $8 per hour (From requirement 2a)

Therefore,

$800 U = (4,800 hours - Standard Hour) × $8 per hour

or, $800 U ÷ $8 per hour = 4,800 hours - Standard Hour

or, 100 hours = 4,800 hours - Standard Hour

or, Standard Hour = 4,800 hours - 100 hours

Hence, Standard Hour = 4,700 hours

Requirement 2 (C)

We know,

Standard hours allowed per unit of product = Standard Hour ÷ Actual production (unit) = 4,700 hours ÷ 2,350 units of product = 2 hours per unit.