Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Inc

Question

Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Incomplete Data [LO10-1, LO10-2]

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 2,190 units of product. In addition, 4,500 direct labor-hours were worked on the product during the month. The cost of this labor time was $31,500. The following variances have been computed for the month:

U

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.

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

1 For Direct Material a. Compute the actual cost per foot for materials for March Materials quantity variance = SP (AQ ? SQ) **$1,950 U = $5.00 per foot (AQ ? 8730 feet*) 390 = AQ-8730 feet AQ = 9120 feet *SQ for Actual Units = 3 p.u*2190 units = 8730 feet **When used with the formula, unfavorable variances are positive and favorable variances are negative Therefore, $45240 ÷ 9120 feet 4.960526 45244.32 = $4.961 per foot (Actual Price) b. Compute the price variance and the spending variance Materials price variance = AQ (AP ? SP) = AQ*AP - AQ*SP = 45240-9120*5 = 360 F The total variance for materials is Materials price variance 1950 U Materials quantity variance 360 F Total (Spending) variance 1590 U 2 For Direct Labour Compute the standard direct labor rate per hour. Labor rate variance = AH (AR ? SR = *2250U = 4500 hrs($7-SR) = 2250 = $31500-4500SR 4500SR = 31500-2250 SR = 29250/4500 SR = $6.50/hr *Labour Rate Variance = Labour Spending Variance - Labor efficiency variance = 3030 U - 780U = 2250 U ** Actual Rate = Actual labour Cost/actual hrs worked = 31500/4500 hrs $7/hr b. Compute the standard hours allowed for the month’s production Labor efficiency variance = SR (AH ? SH) 780 U = $6.50(4500 hrs-SH) 120 = 4500hrs-SH SH = 4500-120 Standard hrs = 4380 hrs c. Compute the standard hours allowed per unit of product The standard hours allowed per unit of product are = Standard Hrs/Units Produced 4380 hrs/2190 units = 2hrs/unit

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