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	?	$	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, 490 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*	$	8,820		$	5,586		$	1,176
Actual costs incurred	$	7,350			?		$	1,078
Materials price variance		?
Materials quantity variance	$	980	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		735
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) Total standard cost of March production = Materials+Direct Labor+Variable Overhead

= $8,820+$5,586+$1,176 = $15,582

Actual number of backpacks produced = 490

Standard cost of a single backpack = Total standard cost allowed/Actual no. of backpacks

= $15,582/490 = $31.80 per backpack

2) Actual cost per backpack

= Standard cost per backpack - Favorable variance between standard and actual cost

= $31.80 - $0.20 = $31.60

3) Standard materials cost per backpack = Total standard materials cost/No. of backpack produced

= $8,820/490 = $18 per backpack

Standard material required per backpack = Std materials cost per backpack/Std price per yard

= $18/$4 = 4.50 yards per backpack

4) Total direct materials variance = Std materials cost allowed - Actual materials cost

= $8,820 - $7,350 = $1,470 Favorable

Total direct materials variance = Materials Price Variance+Materials Quantity Variance

$1,470 F = Materials Price Variance+($980) U

Materials Price Variance = $1,470+$980 = $2,450 F