ACCT20200 Chapter 10: Section 10.2
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Problem 10-11 Direct Materials and Direct Labor Variances; Computations from Incomplete Data [LO10-1, LO10-2]
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 $45,240, all of which were used in the production of 2,190 units of product. In addition, 4,500 direct labor-hours were worked on the product during the month. The cost of this labor time was $31,500. The following variances have been computed for the month:
Materials quantity variance | $ | 1,950 | U |
Labor spending variance | $ | 3,030 | 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 monthâs production.
c. Compute the standard hours allowed per unit of product.
The? Sudbury, South? Carolina, plant of Shannon Sports Companyhas the following standards for its soccer ball? production:
Standards: | 0.1 yard |
Material (leather) per soccer ball | $21 |
Material price per yard | 0.40 Hour |
Direct labor hours per soccer ball | $11 per hour |
Wage rate per direct labor hour | $12 per direct labor hour |
Variable support cost rate | |
Actual results for October: | |
Used 13500 yards of raw material, purchased for $280,530.00. Paid for 8,200 direct labor hours at $11.30 per hour. Incurred $82,000 of variable support costs Manufactured 25,000 soccer balls |
Requirements
Determine the following variances for? October:
?(a) | Total direct material cost variance and indicate whether thevariance is favorable or unfavorable |
?(b) | Total direct labor cost variance |
?(c) | Total variable support cost variance |
?(d) | Direct material price variance |
?(e) | Direct material quantity variance |
?(f) | Direct labor rate variance |
?(g) | Direct labor efficiency variance |
?(h) | Variable support rate variance |
?(i) | Variable support efficiency variance |
AH? = Actual number of direct labor hours
AP? = Actual price per unit of materials
AQ? = Actual quantity of materials used
AR? = Actual wage rate
SH? = Number of direct labor hours allowed given the level ofoutput achieved
SP? = Estimated or standard price per unit of materials
SQ? = Standard quantity of materials allowed for the productionlevel achieved
SR? = Standard wage rate
Working Backward from Variances
On May 1, 20XX, Bovar Company began the manufacture of a new mechanical device known as "Dandy." The company installed a standard cost system in accounting for manufacturing costs. The standard costs for a unit of "Dandy" are as follows:
Raw materials (6lbs. @ $1 per lb.) | $6.00 |
Direct Labor (1 hour @ $4 per hour) | $4.00 |
Overhead (75% of direct labor costs) | $3.00 |
Total | $13.00 |
The following data were obtained from Bovar's records for the month of May:
Units | |
Actual production of "Dandy" | 4,000 |
Units sold of "Dandy" | 2,500 |
Debit | Credit | |
Sales | $50,000 | |
Purchases (26,000 pounds) | $27,300 | |
Material price variance | 1,300 | |
Material quantity variance | 1,000 | |
Direct Labor rate variance | 760 | |
Direct labor usage variance | 800 |
The amount shown above for material price variance is applicable to raw material purchased during May.
Compute each of the following items for Bovar for the month of May. Show computations in good form.
(a) Standard quantity of raw materials allowed (in pounds)
(b) Actual quantity of raw materials used (in pounds)
(c) Standard hours allowed.
(d) Actual hours worked.
(e) Actual direct labor rate.