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6 value: 10.00 points Sharp Company manufactures a product for which the following standards have been set: Standard Quantity Standard Price Standard or Hours 3 feet ? hours Cost $15 or Rate Direct materials Direct labor $5 per foot ? per hour During March, the company purchased direct materials at a cost of $42,660, all of which were used in the production of 2,250 units of product. In addition, 4,600 hours of direct labor time were worked on the product during the month. The cost of this labor time was $34,500. The following variances have been computed for the month: Materials quantity variance Labor spending variance Labor efficiency variance $1,800 U $3,000 U $ 700 U Required 1. For direct materials: a. Compute the actual cost per foot for materials for March. (Round your answer to 2 decimal places.) 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 Spending variance
Expert Answer
1.a.For Direct materials
Units produced=2250
Standard quantity=3*2250=6750 feet
Standard Cost=6750*5=$33,750
Actual Cost=$42,660
Material Cost Variance=(42660-33750)=$8,910 U
SQ=Standard Quantity required
AQ=Actual Quantity used
SP=Standard price per unit
AP=Actual price per unit
Material cost Variance=SQ*(SP-AP)+AP* (SQ-AQ)=-8910
SQ=6750
SP=$5
6750*(5-AP)+AP*(SQ-AQ)=-8910
Materials Quantity Variance=AP*(SQ-AQ)
Materials Quantity Variance=$1,800 U
AP*(SQ-AQ)=-1800
6750(5-AP)-1800=-8910
6750(5-AP)=-8910+1800=-7110
5-AP=-7110/6750=-1.05333
AP=5+1.05333=$6.0533
AP=$6.05 per feet
Actual cost per foot of material=$6.05
| Actual cost per foot of material | $6.05 |
b. Price variance and spending variance:
Price Variance= SQ*(SP-AP)
SQ=Standard Quantity=6750, SP=Standard Price per unit=$5,AP=Actual Price per unit=$6.05
Price variance=6750*(5-6.05)=$7087.50 U
Spending variance=Standard Cost –Actual Cost=(6750*5)-42660=$8,910
| Material Price Variance | $ 7,087.50 | U |
| Spending Variance | $ 8,910.00 | U |
2. For Direct Labor
Labor spending Variance=$3,000U
Labor efficiency variance=$700 U
AH=Actual Hour=4600
Actual Labor cost=$34,500
SH=Standard Hour
AR=Actual Rate=(34500/4600)=$7.5 per hour
SR=Standard Rate
Spending variance=Standard labor cost-actual labor cost=-3000
-3000=Standard cost-34500
Standard cost=34500-3000=$31,500
Labor Efficiency variance=(SH-AH)*SR=-700
(SH-4600)*SR=-700
SH*SR=Standard cost=31500
SH*SR-4600SR=-700
31500-4600SR=-700
4600SR=31500+700=32200
SR=32200/4600=$7.00 per hour
Standard labor rate=$7.00 per hour
| Standard Direct Labor rate per hour | $ 7.00 |
SH=31500/SR=31500/7=4,500 Hours
Standard Hour allowed =4,500 hours
| Standard hours allowed for the months production | 4500 |
Standard hours allowed per unit of product=4500/2250=2
| Standard hours allowed per unit of production | 2 |
