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 |
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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.)
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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.
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(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)