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	?	$	3.00	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, 570 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*	$	8,550		$	6,384		$	1,596
Actual costs incurred	$	6,080			?		$	2,812
Materials price variance		?
Materials quantity variance	$	570	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		855
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?

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)	Standard cost for September production
	Materials				8,550
	Direct labor				6,384
	Variable manufacturing overhead				1,596
	total standard cost		(a)		16,530
	number of backpacks produced			(b)	570
	standard cost of single backpack a/b				29	answer
2)	Standard cost of a single backpack(above)				29
	Deduct Fav variance between std and actual cost				-0.2
	Actual cost per backpack				28.8
3)	total standard cost of materials used (a)				8,550
	number of backpacks produced			(b)	570
	standard material cost per backpacka/b				15
	standard material cost per backpack/standard material cost per yard
	15/3=	=	$5	yards per backpack
4)	standard cost of material used				8,550
	actual cost of materials used				6,080
	Total variance				2,470	F
	price variance				3,040	F
	Quantity variance				570	U	(given)
	total variance				2,470	F
5)	Std VMOH cost				1,596
	std VMOH rate per direct labor hr				2		(given)
	Standard direct labor hours				798
	total std direct labor cost /total standard DLH's
	6,384	/	798	=	8	per DLH	answer
6)	Actual cost per backpack produced				28.8
	number of backpacks produced				570
	total actual cost of production					16416
	less:Actual cost of materials					-6,080
	Actual cost of variable mfg overhead					-3,460
	actual cost of direct labor					6876
	direct labor rate variance
	(AH*AR - SR*AH)
	6876 - 8*855
	36	U
	Direct labor efficiency variance
	(AH-SH)*SR
	(855 - 798)*8
	456	U
7)	variable overhead rate variance
	(AH*AR - SR*AH)
	3,460	-	855*2
	1750	U
	variable overhead efficiency variance
	(AH-SH)*SR
	(855-798)*2
	114	U
			SQ or	SP/SR	standard
8)			SH		cost
	Direct materials		$5	6	15
	Direct labor		1.4	8	11.2
	VMOH		1.4	2	2.8
	total standard cost per backpack				29