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 direct labor rate per hour?

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

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

4. Prepare a standard cost card for one backpack.

Answer 1

Standard Cost per backpack = Standard Costs allowed for Direct Material + DirectLabour + Manufacturing OH

= 11200 + 10500 + 2100 = 23800

Standard Cost per back pack = 23800 / 700 = 34 per backapck

Standard Cost - Actual Cost of backapck = 0.34

34 - Actual Cost per unit of Backpack = 0.34

Actual Cost per unit of back pack - 34-0.34 = 33.66

(DM + DL+ OH) / 700 = 33.66

(8925 + DL + 4032) = 33.66*700

Actual Dircet Labour Cost incurred = 33.66*700 - 8925 - 4032 = $ 10605

1.

Standarad Direct Labour Hours = VOH Standaard Allowed / Standard rate per DLH = 2100 / 2 = 1050 Hours

Standard DLH rate per hour = Standard Cost / Standard Hours = 10500 / 1050 = $ 10 per hour

2.

Labour Rate variance = Actual Hours*Standard rate - Actual Hours*Actual Rate

= 1050*10 - 10605 = $ 105 Unfavourable

Labour efficiency Vriance = Standard Rate*Standard Hours - Actual Hours*Standard Rate

= 1050*10 - 1050*10 = $ 0 Variance

3.

VOH Rate variance = Actual Hours*Standard rate - Actual Hours*Actual Rate

= 1050*2 - 4032 = $ 1932 Unfavourable

VOH efficiency Vriance = Standard Rate*Standard Hours - Actual Hours*Standard Rate

= 1050*2 - 1050*10 = $ 0 Variance

4.

Direct Materials Standards= 11200 / 700 = 16 per unit (16/4 = 4 yards per unit)

Standard Cost card

Direct materials (4 yards per unit @ 4 per Yard)---------------------------------------------------$ 16 per unit

Direct Labour (1.5 hoursper unit @ 10 per hour)--------------------------------------------------$ 15 per Unit

Variable Manufactuting OH (1.5 Hours per unit * 2 per hour)-----------------------------------$ 3 per unit

Standard cost per unit ----------------------------------------------------------------------------------- $ 34 per unit