Question

Problem 10-16 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3]

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	per yard	$	?
Direct labor	?		?			?
Variable manufacturing overhead	?	$	3	per direct labor-hour		?
Total standard cost per unit					$	?

Overhead is applied to production on the basis of direct labor-hours. During March, 1,000 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*	$	16,800		$	21,000		$	4,200
Actual costs incurred	$	15,000			?		$	3,600
Materials price variance		?
Materials quantity variance	$	1,200U
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		1,500
Difference between standard and actual cost per backpack produced during March	$	0.15	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

Solution 1:

Standard cost of 1000 backpack produced = $16,800 + $21,000 + $4,200 = $42,000

Stadard cost of a single back pack = $42,000 / 1000 = $42 per backpack

Solution 2:

Difference between standard cost and actual cost per backpack = $0.15 F

Actual cost per backpack = $42 - $0.15 = $41.85 per backpack

Solution 3:

Standard cost of material used for actual production = $16,800

Standard price of material = $6 per yard

Total standard material for actual prodcution = $16,800 / $6 = 2800 yard

Material required as per standard per back pack = 2800 /1000 = 2.8 yard per backpack

Solution 4:

Material price variance = Total material variance - Material quantity variance

Total material cost variance = $16,800 - $15,000 = $1,800 F

Material quantity variance = $1,200 U

Material price variance = $1,800 F - $1,200 U = $3,000 F

Solution 5:

Standard hours allowed for actual production = $4,200 / 3 = 1400 hour

Standard direct labor hour per back pack = 1400 /1000 = 1.40 hours

Total standard cost of direct labor = $21,000

Standard rate of direct labor = $21,000 /1400 = $15 per hour

Solution 6:

Total actual cost of backpack produced = 1000 * $41.85 = $41,850

Direct labor cost incurred = $41,850 - $15,000 - $3,600 = $23,250

Actual direct labor hours = 1500

actual rate of labor = $23,250 / 1500 = $15.50 per hour

Direct labor rate variance = (SR - AR) * AH = ($15 - $15.50) * 1500 = $750 U

Direct labor efficiency variance = (SH - AH) * SR = (1400 - 1500) * $15 = $1,500 U

Solution 7:

Actual rate of varaible overhead = $3,600/1500 = $2.40 per hour

Variable overhead rate variance = (SR - AR) * AH = ($3 - $2.40) * 1500 = $900 F

Variable overhead efficiency variance = (SH - AH) * SR = (1400 - 1500) * $3 = $300 U

Solution 8:

Standard cost Card - Highland Company
Particulars	Qty		Rate		Per unit
Direct material	2.8	Yard at	$6.00	Per Yard	$16.80
Direct labor	1.4	DLHs at	$15.00	Per DLH	$21.00
Variable overhead	1.4	DLHs at	$3.00	Per DLH	$4.20
Standard cost per unit					$42.00