In: Accounting
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 | ? | $ | 4.50 | 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, 530 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* | $ | 9,540 | $ | 5,936 | $ | 1,484 | |||
Actual costs incurred | $ | 8,645 | ? | $ | 1,690 | ||||
Materials price variance | ? | ||||||||
Materials quantity variance | $ | 1,575 | 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 | 795 | |||
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.
1) Standard Cost of a single backpack :
Standard cost for 530 Backpack | |
Particular | Amount ($) |
Direct material | 9540 |
Direct labor | 5936 |
Variable Mnaufacturing Overhead | 1484 |
Total | 16960 |
Standard cost of a single backpack = $ 16960 / 530
Standard cost of a single backpack = $ 32 / backpack
2) The actual cost per backpack produced during March :
Particular | Amount ($) |
Standard cost per backpack | 32 |
less : Favorable variance | 0.2 |
Actual cost per backpack | 31.8 |
3) Yards of material required at standard per backpack :
Standard cost of material ( for 530 backpack ) = $ 9540
Standard cost of material per backpack = 9540 / 530 = $ 18
Standard Quantity = Standard cost / Standard Price
Standard Qunatity = 18 / 4.5
Yards of material required at standard per backpack = 4 yards per backpack
4) Standard cost of material = $ 9540
Actual cost of material = $ 8645
Material cost variance = Standard cost - actual cost
Material cost variance = 9540 - 8645
Material cost variance= $ 895 F
Also ,
Material cost variance = Material price variance + Material quantity variance
895 = Material price variance + ( - 1575 )
Material price variance = 895 + 1575
Material price variance = 2470 F
5) Standard Direct labor rate per hour = Standard labor cost / Direct labor hours
Standard Direct labor rate per hour can be computed using variable manufacturing overhead since overhead is applied to production on the basis of direct labor hours
Direct labor hours = Standard Variable manufacturing Overhead / Standard Rate
Direct labor hours = 1484 / 2
Direct labor hours = 742
Standard Direct labor rate per hour = $ 5936 / 742
Standard Direct labor rate per hour = $ 8 per hour
6)
Particular | ||
Actual cost per backback | 31.8 | |
Number of backpack | 530 | |
Actual cost | 16854 | |
less : Actual material cost | 8645 | |
less : Actual variable manufactruring cost | 1690 | -10335 |
Actual labor cost ( Actual hour * Actual rate ) | 6519 | |
Actual labor hours | 795 | |
Actual rate per hour ( 6519 / 795 ) | 8.2 |
Labor rate variance = Actual hours ( Standard rate -actual rate )
Labor rate variance = 795 ( 8 - 8.2 )
Labor rate variance = 159 U
Labor efficiency variance = Standard rate ( Standard hours - actual hours )
Labor efficiency Variance = 8 ( 742 - 795 )
Labor efficiency ratio = 424 U
7)
Actual rate for variable overhead = Actual variable overhead / Actual labor hours = 1690 / 795
Actual rate for variable overhead = 2.13 per hour
Variable overhead rate variance = Actual hours ( Standard rate - Actual rate )
Variable Overhead rate variance = 795 ( 2 - 2.13 ) = 103 U
Variable overhead efficiency variance = Standard rate ( Standard hours - Actual hours )
Variable overhead efficiency variance = 2 ( 742 - 795 )
Variable overhead efficiency variance = 106 U
8) Standard cost card for one backpack
Standard quantity | Standard price | Standard cost | |
or hours (a) | or rate (b) | ( a * b) | |
Direct material | 4 yards | $ 4.5 per yard | 18 |
Direct labor | 1.5 hour | $ 8 per hour | 12 |
( 795 / 530 ) | |||
Variable manufacturing overhead | 1.5 hours | $ 2 per hour | 3 |
Total | 33 |
Please hit LIKE if it was helpful