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 $45,240, all of which were used in the production of 2,400 units of product. In addition, 4,900 direct labor-hours were worked on the product during the month. The cost of this labor time was $39,200. The following variances have been computed for the month:

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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

Solution :

(1) : For direct materials -

(a) : Computation of the actual cost per foot of materials for March .

Materials usage/quantity variance = (Actual Quantity Used- Standard Quantity)*Standard Price

3,000 = (Actual Quantity Used - 3*2,400)*5

Actual Quantity Used = 3,000/5 + 7,200

= 600+7,200

Actual Quantity Used = 7,800

Actual Quantity Purchased all is being used than

Actual Quantity Purchased = Actual Quantity Used

Actual Cost per foot = Actual Material Cost/Actual Quantity Purchased

Actual Cost per foot = $45,240 / 7,800

Actual Cost per foot = $5.8

Therefore actual cost per foot of materials for march   = $5.8

(b) :Computation of the price variance and the spending variance -

Materials price variance = (Actual price - Standard Price) *Actual Quantity

Materials price variance = (5.8-5)*7,800

Materials price variance = $ 6,240 Unfavourable

Spending variance = ( Actual price*Actual Quantity - Standard Price*Standard Quantity)

Spending variance = (5.8*7800 – 5*3*2,400)

= 45,240 – 36,000             

Spending variance = $ 9,240 Unfavourable .

(2) : For Direct labor -

(a) Computation of Standard direrct labor rate per hour -

Labor Rate Variance = Labor Spending Variance - Labor Efficiency Variance

Labor Rate Variance = 3,200 - 750

Labor Rate Variance = 2,450 U

Labor rate variance = (Actual Rate-Standard Rate)*Actual Hour

2,450 = (39,200/4,900-Standard Rate)*4,900

Standard Rate = 8 – 2,450/4,900

Standard Rate = $8-0.5

Standard rate    =$ 7.5

Therefore Standard Direct Labor Rate per hour = $ 7.5

(b) Computation of Standard Hour Allowed = ?

Labor efficiency variance = (Actual Hour - Standard Hour Allowed )Standard Rate

750= (4,900-Standard Hour Allowed )*7.5

Standard Hour Allowed = 4,900 – (750/7.5)

                                             = 4,900 -100

Standard Hour Allowed = 4,800

(c): Compute the standard hours allowed per unit of product -

Standard Hour per unit = Standard Hour Allowed /No of Unit produced

Standard Hour per unit = 4,800/2,400

Standard Hour per unit = 2 Hours

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