Question

Sharp Company manufactures a product for which the following standards have been set: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 3 feet $ 5 per foot $ 15 Direct labor ? hours ? per hour ? During March, the company purchased direct materials at a cost of $45,180, all of which were used in the production of 2,290 units of product. In addition, 4,700 direct labor-hours were worked on the product during the month. The cost of this labor time was $32,900. The following variances have been computed for the month: Materials quantity variance $ 3,300 U Labor spending variance $ 3,130 U Labor efficiency variance $ 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.

Answer 1

Answer:

1a) Actual Cost per foot = 6$

1b) Materials Price variance = 7530

1b) Spending Variance = 10830

2a) Standard Rate = 7.5 USD

2b) Standard Hours = 4804 hours

2c) Standard hours allowed = 2.09

Explanation:

As usual, let's sort out the data given:

1. For direct materials:

a) Compute the actual cost per foot of materials for March.

For actual cost per foot for materials for march. We need to find the actual quantity first. so, we will come back to it.

Data Given:

Units Produced = 2,290

Standard Quantity for Direct material = 3 feet

Standard Quantity for Direct materials = 3 x 2,290 = 6870 feet

Standard Price per foot = 5 USD

Standard Total Units =  6870

Total Price = 5 x 6870 = 34350 USD

But

Actual Price = unknown

Actual Quantity = Unknown

Actual Cost = 45,180$ company purchased the direct materials at that cost.

Material Quality Variance = Standard Price x (Actual Qty - Standard Qty)

Here in this equation, we know all the quantities except Actual Qty. let's make it subject to calculate it.

Actual Qty = 3,300/$5 + 6870

Actual Qty = 7,530

Now, as we have Actual Quantity, we can calculate the part a of part 1.

So, let's calculate a.

a) a) Compute the actual cost per foot of materials for March.

Actual cost per foot = Direct Material Cost / Actual Qty

Actual Cost per foot = 45,180/7530

Actual Cost per foot = 6$

Let's move on to part 1 b.

b) Compute the price variance and the spending variance.

Formula to calculate the Materials Price Variance is as follows:

Materials Price Variance = Actual Qty x( Actual Price - Standard Price)

Materials Price Variance = 7530 x ( 6 - 5)

Materials Price variance = 7530

Now, we have to calculate the spending variance and the formula is as follows:

Spending Variance = (Actual Price x Actual Qty) - (Standard Qty x Standard Price)

Spending Variance = (6 x 7530) - ( 6870 x 5)

Spending Variance = 10830

Let's move on to part 2 a.

a) Compute the standard direct labor rate per hour:

Formula :

Labor rate variance = (Standard Rate - Actual Rate) x Actual Hours

Labor rate variance = Labor spending variance - Labor efficiency variance

Labor rate variance =   3130 - 780 = 2350

In this equation, we know all the quantities but we have to find Standard rate so make it subject.

Standard Rate = 2350/4700 + 7

Standard Rate = 7.5 USD

b. Compute the standard hours allowed for the month’s production.

Labor Efficiency Variance = Standard rate x ( Actual hours - Standard Hours)

In this part, we need to find the standard hours.

let's make it the subject.

Standard hours = 780/7.5 + 4700

Standard Hours = 4804 hours

c. Compute the standard hours allowed per unit of product.

Standard hours allowed can be found by plugging in the values in the following formula.

Formula:

Standard hours allowed = Standard hours / units produced

Standard hours allowed = 4804/2,290

Standard hours allowed = 2.09