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 ? $ 8.00 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, 600 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* $ 15,360 $ 9,000 $ 1,800 Actual costs incurred $ 13,965 ? $ 2,985 Materials price variance ? Materials quantity variance $ 600 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 900 Difference between standard and actual cost per backpack produced during March $ 0.20 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? b. What was the actual cost per backpack produced during March? c. How many yards of material are required at standard per backpack? d. What was the materials price variance for March if there were no beginning or ending inventories of materials? e. What is the standard direct labor rate per hour? f. What was the labor rate variance for March? The labor efficiency variance? g. What was the variable overhead rate variance for March? The variable overhead efficiency variance? h. Prepare a standard cost card for one backpack.

Answer 1

ANSWER:

Required a) Computation of standard cost of a single backpack

Particulars	Amount
Standard cost for March Production
Materials	$15,360
Direct Labor	$9,000
Variable Manufacturing Overhead	$1,800
Total Standard Cost	$26,160
Number of Backpacks Produced	600
Standard cost of a single Backpack	$43.60

Required b) Computation of Actual cost per Backpack

Particulars	Amount
Standard cost of a single Backpack	$43.60
Less: Difference Between Standard and actual Cost	$0.20
Actual Cost per Backpack	$43.40

Required c)

Computation of Number of yards at standard per Backpack

Particulars	Amount
Total Standard cost of materials allowed during march	$15,360
(/) Number of Backpacks Produced during march	600
Standard material cost per Backpack	$25.60
(/) Standard material cost per yard	$8.00
Number of yards per Backpack	3.2

Required d)

Material price variance = Total material variance - Material quantity variance

Total material cost variance = $15,360 - $13,965 = $1,395 F

Material quantity variance = $600 U

Material price variance = $1,395 F - ($600 U) = $1,995 F

Required e) Computation of standard Direct labor rate per hour

Particulars	Amount
Standard Variable manufacturing overhead cost	$1,800
Standard Variable manufacturing overhead rate per hour	$2
Standard Direct labor hours for March	900
Standard Direct labor Cost for march	$9,000
Standard direct labor rate per hour	$10

Required f)

Total actual cost of backpack produced = 600 * $43.40 = $26,040

Direct labor cost incurred = $26,040 - $13,965 - $2,985 = $9,090

Actual direct labor hours = 900 hours

Actual rate of Direct labor = $9,090 / 900 = $10.1 per hour

Direct labor rate variance = (SR - AR) * AH = ($10 - $10.1) * 900 = $90 U

Direct labor efficiency variance = (SH - AH) * SR = (900 - 900) * $10 = 0

Required g)

Actual rate of variable overhead = $2,985 / 900 = $3.316 per hour

Variable overhead rate variance = (SR - AR) * AH = ($2 - $3.316) * 900 = $1,184.4 U

Variable overhead efficiency variance = (SH - AH) * SR = (900 - 900) * $2 = 0

Required h)

Standard cost Card - Highland Company

Particulars	Standard Quantity or hours	Standard Price or rate	Standard cost
Direct Material	3.2 yards	$8 per yard	$25.6
Direct Labor (900 / 600)	1.5 hours	$10 per DLH	$15
Variable overhead	1.5 hours	$2	$3
Standard cost per unit	$43.6