Question

Highland Company produces a lightweight backpack that is popular with college students. Standard variable costs relating to a single backpack are given below:

	Standard Quantity or Hours	Standard Price or Rate			Standard Cost
Direct materials	?	$	4.00	per yard	$	?
Direct labor	?		?			?
Variable manufacturing overhead	?	$	2	per direct labor-hour		?
Total standard cost per unit					$	?

Overhead is applied to production on the basis of direct labor-hours. During March, 420 backpacks were manufactured and sold. Selected information relating to the month’s production is given below:

	Materials Used			Direct Labor			Variable Manufacturing Overhead
Total standard cost allowed*	$	6,720		$	4,368		$	1,092
Actual costs incurred	$	5,355			?		$	1,407
Materials price variance		?
Materials quantity variance	$	420	U
Labor rate variance					?
Labor efficiency variance					?
Variable overhead rate variance								?
Variable overhead efficiency variance								?

*For the month's production.

The following additional information is available for March’s production:

Actual direct labor-hours		630
Difference between standard and actual cost per backpack produced during March	$	0.15	F

Required:

Hint: It may be helpful to complete a general model diagram for direct materials, direct labor, and variable manufacturing overhead before attempting to answer any of the requirements.

1. What is the standard cost of a single backpack?

2. What was the actual cost per backpack produced during March?

3. How many yards of material are required at standard per backpack?

4. What was the materials price variance for March if there were no beginning or ending inventories of materials?

5. What is the standard direct labor rate per hour?

6. What was the labor rate variance for March? The labor efficiency variance?

7. What was the variable overhead rate variance for March? The variable overhead efficiency variance?

8. Prepare a standard cost card for one backpack.

Answer 1

1.

Direct material	$6,720
Direct labor	$4,368
Variable manufacturing overhead	$1,092
Total standard cost for 420 back pack	$12,180
÷ Number of back packs produced	420
Total cost allowed per back pack ($12,180/420)	$29

Standard cost of a single back pack is $ 29

2.

Actual cost per back pack

= Standard cost of a single back pack – favourable cost variance per back pack

= $ 29 - $ 0.15 = $ 28.85

3.

Standard cost of material per back pack

= Total standard material cost/Number of back packs produced

= $ 6,720/420

= $ 16

Number of yards allowed per back pack

= Standard cost of material per back pack /Standard price per yard

= $ 16/$ 4 = 4 yards

4.

Total material variance

= Actual cost incurred – Total cost allowed

= $ 5,355 - $ 6,720

= - $ 1,365   F

Material price variance

= Total material variance - Material quantity variance

= - $ 1,365 - $ 420 = - $ 1,785    F