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 or Rate 5 per foot ? per hour Cost Direct materials Direct labor 15 During March, the company purchased direct materials at a cost of $43,335, all of which were used in the production of 2,425 units of product. In addition, 4,000 direct labor-hours were worked on the product during the month. The cost of this labor time was $28,000. The following variances have been computed for the month Materials quantity variance Labor spending variance Labor efficiency variance 3,750 U 2,780 U $780 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.

Explanation / Answer

Ans. material quty variance = SPXSQ-SPXAQ

                                       -3750 = 15XSQ-15X2425

                                       -3750 = 15XSQ-36375

Standared Qty = 2175 units

Calculation of Actual cost per feet = $43335/(2425X3) = 5.96 per feet

Computation of material price variance = (SP-AP)XActual unit

Actual unit price = $43335/2425 = $17.87

Material price variance = (15-17.87)X2425 = 6959.75 (unfavourable)

2. Labour Variance

a. Calculation of standared direct labour rate per hour

Labour spending variance = (SPXActual hours -APX Actual Hours

                             -2780 = SPX4000-28000

SP for per direct labour hour = 6.305 per hour            

b. Calculation of Standard hours allowed for actual production

Labour Effienciency variance = (SPXStd.labours-SPXActual Hours)

                                        -780     = (6.305XStd. Labour hrs-6.30X4000)

                                        -780     = 6.305Xstd. labour hrs-25200

Standard Labour Hrs = (25200-780)/6.305 = 3873 labour hours

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