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: Standard Quantity Standard Price Standard or Hours 3 feet ? hours Cost $15 or Rate Direct materials Direct labor $5 per foot ? per hour During March, the company purchased direct materials at a cost of $56,610, all of which were used in the production of 2,875 units of product. In addition, 4,700 hours of direct labor time were worked on the product during the month. The cost of this labor time was $37,600. The following variances have been computed for the month: Materials quantity variance Labor spending variance Labor efficiency variance $4,050 U $2,180 U 770 U

Explanation / Answer

1. a) Material Usage Variance = (Actual quantity - Standard quantity for actual production) Std price

       4,050 = (AQ - 2875*3) * 5

     810 = AQ - 8625; AQ = 8625+810 = 9435 ft.

     Total cost of 9435 ft = $ 56,610; Therefore, actual cost of material per foot = $ 6.10

1.b) Here, since both the qantity purchased and quantity used is the same, the Spending Variance and Price Variance are the same.

    = (6 -5) * 9435 = $ 9435 (U)

2.a) Std Direct labour hour rate

      Labour spending variance = Actual hours ( Actual rate - standard rate)

            2180 = 4700 ( 8 - S); 2180 = 37600 - 4700S; 35420 = 4700 S; S = 7.5361 = $ 7.54

2.b) Standard Hours allowed for the months production:

      Labour efficiency Variance = (Actual Hours - Std Hours for actual production) * Std labour rate

      770 = (4700 - Std Hrs) * 7.54

      770/7.54 = 4700 - Std Hrs

      102.1220 = 4700 - Std Hrs

       Std Hrs = 4700 - 102.1220 = 4597.88

2.c) Std Hours per unit of the product = 4597.878/2875 = 1.60 Hrs.

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