Question

True Colour Inc. manufactures waterproof laptop backpacks. The standard cost card of a single backpack is 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, 700 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*	$	11,200		$	10,500		$	2,100
Actual costs incurred	$	8,925			?		$	4,032
Materials price variance		?
Materials quantity variance	$	700	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		1,050
Difference between standard and actual cost per backpack produced during March	$	0.34	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?

Answer 1

Ans 1. cost of materials = $11,200

cost of Direct labour= $10,500

Variable manufacturing overhead= $ 2,100

Total standard cost = $11,200 + $10,500 $ 2,100 = $23, 800

Number of backpacks produced= 700

Standard cost of a single backpack= total standard cost / number of backpacks

= $23,800 / 700

= $34

Ans 2. Standard cost of a single backpack = $ 34 (as calculated in ans 1)

variance between standard and actual cost per backpack = $ 0.34 (F)

Actual cost per backpack produced during March = Standard cost - variance between standard and actual cost

= $34 - $0.34

= $33.66

Ans 3. Total standard cost of materials during March = $ 11,200

Number of backpacks produced during March = 700

Standard material cost (SMC) per backpack = total standard material cost / number of backpacks

= $11,200 / 700

= $16

Standard material cost (SMC) per yard = $4 (given in Ques)

Yards of material required at standard per backpack = SMC per backpack / SMC per yard

= $16 / $4

= 4 yards per backpack

Ans 4. Standard cost of materials used = $11,200

Actual cost of materials used = $ 8,925

Total material Variance = Standard cost of Material - Actual cost of material used

= $ 11, 200 - $ 8,925

= $2,275 (Favourable)

As there is no beginning or ending inventories of materials, the total material purchased was used during the month.

The price and quantity variance together therefore equal the total material variance. The material quantity variance is given as $700 (U). So, the price variance must be calculated as follows:

Total material variance = $2,275 (F) = + $2,275 (F stands for Favourable)

material quantity variance = $ 700 (U) = - $700   (U stands for unfavourable)

The price variance per march = Total material variance - material quantity variance

= (+2,275) - (-700)

=2,275 + 700

= $2,975 (F)