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, 420 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*	$	6,720		$	4,368		$	1,092
Actual costs incurred	$	5,355			?		$	1,407
Materials price variance		?
Materials quantity variance	$	420	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		630
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

(1) Standard cost of Single Backpack :-   

Material (6720/420)	16
Labour (4368/420)	10.4
Variable O/H (1092/420)	2.6
Standard cost of Single Backpack	29

(2) Actual cost of Single Backpack :-           

   Difference between standard and actual cost per backpack produced during March = 0.15 (F)

Actual cost of Single Backpack = 29 – 0.15 = 28.85

(3) Yards of material are required at standard per backpack :-

   

Total standard cost of materials allowed during March	6720
Number of backpacks produced during March	420
Standard materials yards	(6720/4) =1680
Standard materials cost per yard	4
Number of yards per backpack	(1680/420) =4

(4) DM Price Variances:-

Direct Material Spending Variance :-

       = Std cost – Actual cost

                     = 6720 - 5355= 1365(F)

     Material Qty Variance = 420(U)

Material Cost Variance = Material Price Variance + Material Qty Variance

                    1365(F) = MPV + 420(U)

   MPV = 1785 (F)

(5) Standard Direct labour Rate per hour :-

Standard variable manufacturing overhead cost for March (A)	1092
Standard variable manufacturing overhead rate per direct labor-hour (B)	2
Standard direct labor-hours for March (C=A/B)	546 hrs
Standard direct labor cost for March (D)	4368
Standard direct labor rate per hour (D/C)	$ 8 per hour

(6)

Direct Labour Rate Variance	315(U)
Direct Labour Efficiency Variance	672(U)

Labour Rate Variance :-

        (Std Rate – Actual Rate) * Actual hrs

Actual Total cost per Back Pack = 28.85

Actual total cost of 420 Back pack = 420 * 28.85 = 12117

Actual Labour cost = Actual total cost – Actual Material cost – Actual variable cost

                         = 12117 – 5355– 1407= 5355

Actual Rate per hr = 5355/630 hrs = 8.5

=( Std Rate – Actual Rate) * Actual hrs

=(8 – 8.5) * 630= 315(U)

Labour Efficiency Variance:-

(Std hrs – Actual hrs) * SR

(546 – 630) * 8 = 672(U)

(7)

V. O/H Rate Variance	145(U)
V. O/H Efficiency Variance	168(U)

Variable O/H Rate Variance :-

                 (Std Rate – Actual Rate) * Actual hrs

Std Rate = 2 per hr

Actual rate = 1407 / 630 hrs = 2.23

=(2 – 2.23) * 630 = 145(U)

V. O/H Efficiency Variance:-

(Std hrs – Actual hrs) * SR

(546 – 630) * 2= 168(U)

(8) Std Cost card:-

	Standard Quantity or Hours	Standard Price or Rate	Standard Cost
Direct materials	4 yards	$4.0 per yard	$ 16
Direct labor	1.3 hours	$8 per hour	$ 10.4
Variable manufacturing overhead	1.3 hours	$2.0 per hour	$ 2.6
Total standard cost			$ 29