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 $44,160, all of which were used in the production of 2,350 units of product. In addition, 4,800 hours of direct labor time were worked on the product during the month. The cost of this labor time was $36,000. The following variances have been computed for the month:

Sharp Company manufactures a product for which the following standards have been set:

Explanation / Answer

1

a)

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

3150 = (Actual Quantity Used-3*2350)*5

Actual Quantity Used = 3150/5 + 7050

Actual Quantity Used = 7680

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 = 44160/7680

Actual Cost per foot = $ 5.75

b)

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

Materials price variance = (5.75-5)*7680

Materials price variance = $ 5760 Unfavorable

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

Spending variance = (44160-5*3*2350)

Spending variance = $ 8910 Unfavorable

2

a)

Labor Rate Variance = Labor Spending Variance - Labor Efficiency Variance

Labor Rate Variance = 3100-700

Labor Rate Variance = 2400 U

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

2400 = (36000/4800-Standard Rate)*4800

Standard Rate = 7.50 - 2400/4800

Standard Rate = $ 7

Answer

Standard Direct Labor Rate per hour = $ 7

b)

Standard Hour Allowed = ?

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

700= (4800-Standard Hour Allowed )*7

Standard Hour Allowed  = 4800 - 100

Standard Hour Allowed = 4700

c)

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

Standard Hour per unit = 4700/2350

Standard Hour per unit = 2 Hours

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