Sharp Company manufactures a product for which the following |
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 $58,050, all of which were used in the production of 3,320 units of product. In addition, 4,900 hours of direct labor time were worked on the product during the month. The cost of this labor time was $39,150. The following variances have been computed for the month: |
Materials quantity variance | $ | 2,700 | U |
Labor spending variance |
$ | 690 | F |
Labor efficiency variance |
$ | 640 | F |
Required: |
1. | For direct materials: |
a. |
Compute the actual cost per foot for materials for March. (Round your answer to 2 decimal places.) |
Actual Cost: __________ per foot |
b. |
Compute the price variance and the spending variance. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance)) Price Variance _________ F/U/None (choose one) Spending Variance __________ F/U/None (choose |
2. | For direct labor: |
a. |
Compute the standard direct labor rate per hour. (Do not round intermediate calculations.) Standard direct labor rate per hour ______ |
b. |
Compute the standard hours allowed for the month�s production. |
Standard Hours _________ |
c. |
Compute the standard hours allowed per unit of product. (Round your answer to 1 decimal place.) |
Standard hours _________ (hours per unit) |
Answer
General guidance
Variance Analysis: Variance analysis is the process of evaluating the differences between actual and budgeted results due to revenue, cost, and variable labor expense.
Standard cost: A standard cost is the estimated cost of production based on both historical and planned data under normal conditions of operations. It is also known as budgeted cost.
Material Price variance: The change in the standard price stated and the actual price paid is referred to as material price variance.
Material Quantity variance: The changes between the standard cost of standard quantity of materials for actual output and the standard cost of the actual material used.
Labor cost variance is a measure that determines the difference between the estimated cost of the direct labor and the actual cost of the direct labor.
Labor efficiency variance is a measure that determines the difference between the estimated labor quantity and the actual labor quantity used.
Formula for Material price variance as shown below:
Formula for Material spending variance as shown below:
Formula for Material quantity variance as shown below:
Formula for Labor rate variance as shown below:
Formula for Labor efficiency variance as shown below:
Formula to calculate the standard hours allowed per unit of product is calculated as follows:
Unfavorable variance: It occurs when the actual cost is higher than the budgeted cost. It is denoted as (UF).
Favorable variance: It occurs when the actual cost is lower than the budgeted cost. It is denoted as (F).
Step-by-step
Step 1 of 5
(1.a)
The actual cost per foot (March) is calculated as follows:
Therefore, actual cost per foot for the month of March is $5.53
Working notes:
The actual quantity is calculated as under:
Actual cost for the month of March is $5.53 per foot.
The actual cost per foot for materials is calculated by dividing actual material cost purchased by actual quantity of material used for the month. Actual quantity used for the month is calculated by substituting standing quantity, standard price in material quantity variance formula. Total Standard quantity is calculated by multiplying Total units with standard quantity of direct materials used.
Step 2 of 5
(1.b)
The Material price variance is calculated as follows:
Therefore, material price variance is $5,565.
The Material spending variance is calculated as follows:
Therefore, material spending variance is $8,250.
Material price variance is $5,565 (U) & material spending variance is $8,250 (U).
Material price variance ($5,565 Unfavorable) is calculated by finding the difference between the standard price and actual price per unit and then multiplying with actual quantity. Here we have calculated actual price per unit and actual quantity. Therefore, calculate material price variance from the above formula which arrives at.
Material spending variance ($8,250 Unfavorable) is calculated by finding the difference between standard cost of standard quantity and standard cost of actual quantity. The standard cost of standard quantity is calculated by multiplying standard quantity with standard price.The standard cost of actual quantity is calculated by multiplying Actual quantity with Actual price.
Step 3 of 5
(2.a)
The standard direct labor per hour is calculated as follows:
Therefore, the standard direct labor per hour is $8.
Working notes:
Labor rate variance is calculated as below:
Standard direct labor rate per hour is $8.
Labor rate variance is calculated by taking difference betweenstandard rate and actual rate and then multiplying it with actual hours. Here actual rate is calculated as dividing direct labor cost by actual labor hours. Labor rate variance is calculated by taking difference between labor efficiency variance and labor spending variance. Therefore, we derive standard rate per labor hour using labor rate variance formula to arrive at $8.
Step 4 of 5
(2.b)
The standard hours allowed is calculated as follows:
Therefore, standard hours allowed is 4,980 hours.
Standard hours allowed for the month is 4,980.
The formula to calculate labor efficiency variance is by taking difference between standard hours andactual hours and then multiplying with standard rate. Therefore, derive standard hours (4,980 hours) using labor efficiency variance, actual hours and standard rate as calculated above.
Step 5 of 5
(2.c)
The standard hours allowed per unit of product is calculated as follows:
Therefore, standard hours allowed is 1.5 hours.
Standard hours allowed is 1.5 hours per unit.
Standard hours allowed per unit of product is calculated by dividing total standard hours allowed for actual production by number of units produced. Standard hours allowed is calculated in step 4. The standard hours allowed (4,980 hours) is divided by number of units produced (3,320 units) to arrive at standard hours allowed per unit (1.5 hours).
Answer
Actual cost for the month of March is $5.53 per foot.
Material price variance is $5,565 (U) & material spending variance is $8,250 (U).
Standard direct labor rate per hour is $8.
Standard hours allowed for the month is 4,980.
Standard hours allowed is 1.5 hours per unit.
Answer only
Actual cost for the month of March is $5.53 per foot.
Material price variance is $5,565 (U) & material spending variance is $8,250 (U).
Standard direct labor rate per hour is $8.
Standard hours allowed for the month is 4,980.
Standard hours allowed is 1.5 hours per unit.