Question

In: Accounting

Highland Company produces a lightweight backpack that is popular with college students. Standard variable costs relating...

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 ? $ 6.00 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, 800 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* $ 19,200 $ 9,200 $ 1,600
Actual costs incurred $ 11,100 ? $ 4,740
Materials price variance ?
Materials quantity variance $ 3,000 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 1,200
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? (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Materials price variance
Materials quantity variance
Spending variance

5. What is the standard direct labor rate per hour?

6. What was the labor rate variance for March? What is the labor efficiency variance?

7. What was the variable overhead rate variance for March? What is the variable overhead efficiency variance?

8. Prepare a standard cost card for one backpack.

Standard Quantity or Hours Standard Price or Rate Standard Cost
Direct materials yards $6.00 per yard
Direct labor hours per hour
Variable manufacturing overhead hours $2.00 per direct labor-hour
Total standard cost

Solutions

Expert Solution

(1) Standard cost of Single Backpack :-   

Material (19200/800)

24

Labour (9200/800)

11.5

Variable O/H (1600/800)

2

Standard cost of Single Backpack

37.5

(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 = 37.5 – 0.15 = 37.35

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

    Std cost of material =19200

     Std Rate = $ 6 per yard

    Std cost per Back pack = 19200/6 = 3200

     Actual output = 800 Backpack

    Std qty per Backpack = 3200/800 = 4

(4) Material Price Variance :-

        Material Cost Variance = Std cost – Actual cost

                     = 19200 – 11100 = 8100 (F)

     Material Qty Variance = 3000(U)

Material Cost Variance = Material Price Variance + Material Qty Variance

                    8100(F) = MPV + 3000(U)

   MPV = 11100 (F)

(5) Standard direct labor rate per hour:-

      Std Hrs = Std variable OH / Std OH rate per hr

             = 1600/2 = 800 hrs

Standard direct labor rate per hour = Std cost of labour/std hrs

                        = 9200/800 = $11.5 per hr

(6) Labour Rate Variance :-

        (Std Rate – Actual Rate) * Actual hrs

Actual Total cost per Back Pack = 37.35

Actual total cost of 600 Back pack – 800*37.35 = 29880

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

                         = 29880 – 11100 – 4740 = 14040

Actual Rate per hr = 14040/1200 hrs = 11.7

=( Std Rate – Actual Rate) * Actual hrs

=(11.5 – 11.7) * 1200 = 240(U)

(7) Variable O/H Rate Variance :-

                 (Std Rate – Actual Rate) * Actual hrs

Std Rate = 2 per hr

Actual rate = 4740 / 1200 hrs = 3.95

=(2 – 3.95) * 1200 = 2340(U)


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