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	?	$	6.00	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, 680 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*	$	16,320		$	13,600		$	2,176
Actual costs incurred	$	15,425			?		$	3,802
Materials price variance		?
Materials quantity variance	$	2,190	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		1,020
Difference between standard and actual cost per backpack produced during March	$	0.10	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?

Answer 1

1. Standard Cost per unit = Total Standard Cost / Number of units = (16320+13600+2176) / 680 = 47.2 per backpack

2. Standard Cost minus actual cost = 0.10F

= atual cost per backpack = 47.20-0.10 = 47.10 per backpack

3. yards of material required per backpack = Standard Cost / (Units * Rate per yard) = 16320 / (680*6) = 4 per yard

4. Materials Quantity variance = Standard Rate (Standard Quantity - Actual Quantity) = 16320 - AQ*24 = 2190 U

AQ = (16320+2190) / 24 = 771.25 Yards

Materials price variance = Actual Quantiry (Standard Rate - Actual RAte) = 771.25*24 -   15425 = 3085 F

5. Standard VOH Cost = 2176, Standard VOH rate per labour hour = 2 per hour

Standard Labour Hours = 2176 / 2 = 1088 Direct Labour Hours

Standard Labour Cost allowed = 13600

Standard Labour rate per hour = 13600 / 1088 = 12.5 per labour hour

6.  Actual Cost per bck pack = 47.10 = (15425 + Actual Labour cost + 3802) / 680

Actual Labour cost = 12801 , Actual Labour Rate = 12801 / 1020 = 12.55 per hour

  Labour rate variance = Actual Hours (Standard Rate - Actual rate) = 1020 (12.50 - 12.55) = 51 U

Labour Efficiency Variance = Standard Rate (Standard Hours - Actual Hours) = 12.5 (1088 - 1020) = 850 F

7. VOH rate Variance = Actual Hours (Standard Rate - Actual Rate) = 1020*2 - 3802 = 1762 U

VOH Efficiency variance = Standard Rate (Standard Hours - Actual Hours) = 2*(1088-1020) = 136 F