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

Question

2 Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Incomplete Data [LO10-1, LO10-2 10 points Sharp Company manufactures a product for which the following standards have been set: Standard Quantity or Hours Standard Price Standard Cost or Rate eBook Direct materials Direct labor per foot per hour 3 feet $5 $ 15 ? hours Print During March, the company purchased direct materials at a cost of $64,440, all of which were used in the production of 3,500 units of product. In addition, 5,000 direct labor-hours were worked on the product during the month. The cost of this labor time was $47,500. The following variances have been computed for the month: Reference Materials uantity variance Labor spending variance $3,400 U Labor efficiency variance $1,200 U $ 900 tU 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. Complete this question by entering your answers in the tabs below. Req 1AReq 1B Req 2 For direct materials, compute the actual cost per foot of materials for March. (Round your answer to 2 decimal places.) per foot Actual cost Req 1A Req 1B>

Explanation / Answer

Answer 1 (a)

Standard Quantity required to produce actual output (3500 units) = 3500 units * 3 feet per unit = 10,500 feet

Standard Rate per feet = $ 5 (Given)

Actual Purchase Price of Direct Material = 64,440 (Given)

Material Quantity Variance = Standard Price of Material * ( Standard Quantity allowed - Actual Quantity Utilised)

-1,200 = 5 ( 10500 - Actual Quantity Utilised)

-1,200 = 52,500 - 5Actual Quantity Utilised

Therefore, Actual Quantity utilised = (52,500 +1200) / 5 = 10,740 Feet

Actual Cost per foot of Raw Material = 64,440 / 10740 = $ 6 per foot

Answer 1 (b) Material Spending Variance = Actual Quantity * ( Standard Rate - Actual Rate)

= 10,740 (5-6)

= -10,740 i.e. 10,740 Unfavourable

Total Material Cost Variance = Material Quantity Variance + Material Spending Variance = (1,200) + (10,740) = (11,940) i.e. 11,940 Unfavourable

Answer 2

Labour Spending Variance = Actual Labour Hours (Standard Rate - Actual Rate)

-3,400 = Actual Labour Hours*Standard Rate - Actual Direct Labour Cost

-3,400 = 5000*Standard Rate - 47,500

Standard Rate = (47500 - 3400) / 5,000 = 8.82 per Hour

Labour Efficiency Variance = Standard Rate (Standard Hours allowed - Actual Hours Used)

-900 = 8.82 ( Standard Hours allowed - 5000)

-900 = 8.82 Standard Hours allowed - 44,100

Standard Hours allowed = 4897.96 Hours

Standard Hours allowed per unit = 4879.96 / 3500 = 1.40 Hours per unit

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