| 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 $49,170, all of which were used in the production of 2,750 units of product. In addition, 4,500 hours of direct labor time were worked on the product during the month. The cost of this labor time was $36,000. The following variances have been computed for the month: |
| Materials quantity variance | $ | 3,450 | U |
| Labor spending variance | $ | 3,000 | U |
| Labor efficiency variance | $ | 750 | U |
| Required: |
| 1. | For direct materials: |
| a. | Compute the actual cost per foot for materials for March. (Round your answer to 2 decimal places.) |
| b. | Compute the price variance and the spending variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance)) |
| 2. | For direct labor: |
| a. | Compute the standard direct labor rate per hour. (Do not round intermediate calculations.) |
| b. | Compute the standard hours allowed for the month’s production. |
| c. | Compute the standard hours allowed per unit of product. (Round your answer to 1 decimal place.) |
a. Materials quantity variance = SP (AQ – SQ)
$5.00 per foot (AQ – 8250 feet*) = $3450 U
$5.00 per foot × AQ – $41250 = $3450**
$5.00 per foot × AQ = $44,700
AQ = 8940 feet
| *2750 units × 3.00 feet per unit |
| **When we use the formula, unfavorable variances are positive and favorable variances are negative. |
Therefore, $49,170 ÷ 8940 feet = $5.5 per foot.
b. Materials price variance = AQ (AP – SP)
8940 feet ($5.50 per foot – $5.00 per foot) = $4470 F
The total variance for materials would be:
| Materials price variance……………………………… | $ 4470 | U |
| Materials quantity variance…………………………. | 3450 | U |
| Total variance……………………………………………. | $7920 | U |
2. a. Labor rate variance = AH (AR – SR)
4500 hours ($8 per hour* – SR) = $3750 F**
$36000 -4500 hours × SR = -$3750***
4500 hours × SR = $39750
SR = $8.83 per hour
| * | $36000 ÷ 4500 hours | ||
| ** | Total labor variance………………………………………………………. | $ 3000 | U |
| Labor efficiency variance……………………………………………… | 750 | U | |
| Labor rate variance………………………………………………………. | $3750 | F | |
| *** | When used with the formula, unfavorable variances are positive and favorable variances are negative. | ||
b. Labor efficiency variance = SR (AH – SH)
$8.83 per hour (4500 hours – SH) = $750 U
$39375 – $8.83 per hour × SH = $750*
$7.50 per hour × SH = $38985
SH = 4680 hours
| * | When used with the formula, unfavorable variances are positive and favorable variances are negative. |
. The standard hours allowed per unit of product would be:
4680 hours ÷ 2750 units = 1.70 hours per unit
