Sharp Company manufactures a product with the following standards: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials 3 feet $ 5 per foot $ 15 Direct labor ?question mark hours ?question mark per hour ?question mark During March, the company purchased direct materials for $52,740, all of which were used in the production of 2,750 units. In addition, 4,500 direct labor-hours were worked on the product during the month. The cost of this labor time was $40,500. The following variances have been computed for the month: Materials quantity variance $ 2,700 U Labor spending variance $ 3,100 U Labor efficiency variance $ 850 U Required: For direct materials: Compute the actual cost per foot of materials for March. Compute the price variance and the spending variance. For direct labor: Compute the standard direct labor rate per hour. Compute the standard hours allowed for the month’s production. Compute the standard hours allowed per unit of product.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Sharp Company manufactures a product with the following standards:
| Standard Quantity or Hours | Standard Price or Rate | ||||
|---|---|---|---|---|---|
| Direct materials | 3 | feet | $ 5 | per foot | $ 15 |
| Direct labor | ?question mark | hours | ?question mark | per hour | ?question mark |
During March, the company purchased direct materials for $52,740, all of which were used in the production of 2,750 units. In addition, 4,500 direct labor-hours were worked on the product during the month. The cost of this labor time was $40,500. The following variances have been computed for the month:
| Materials quantity variance | $ 2,700 | U |
|---|---|---|
| Labor spending variance | $ 3,100 | U |
| Labor efficiency variance | $ 850 | U |
Required:
-
For direct materials:
- Compute the actual cost per foot of materials for March.
- Compute the price variance and the spending variance.
-
For direct labor:
- Compute the standard direct labor rate per hour.
- Compute the standard hours allowed for the month’s production.
- Compute the standard hours allowed per unit of product.
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