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	?	$8.00 per yard	$ ?
Direct labor	?	?	?
Variable manufacturing overhead	?	$2 per direct labor-hour	?
Total standard cost			$?

  

Overhead is applied to production on the basis of direct labor-hours. During March, 600 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*	$15,360	$9,000	$1,800
Actual costs incurred	$14,210	?	$2,033
Materials price variance	?
Materials quantity variance	$ 880 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	970
Standard overhead rate per direct labor-hour	$2.00
Difference between standard and actual cost per backpack produced during March	$0.20	F

  

Required:

1.

What is the standard cost of a single backpack?

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 ? $8.00 per yard $ ?         Direct labor ? ? ?         Variable manufacturing overhead ? $2 per direct labor-hour ?            Total standard cost $?                   Overhead is applied to production on the basis of direct labor-hours. During March, 600 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* $15,360       $9,000 $1,800   Actual costs incurred $14,210       ? $2,033   Materials price variance ?   Materials quantity variance $ 880 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 970     Standard overhead rate per direct labor-hour $2.00     Difference between standard and actual cost per backpack produced during March $0.20   F    Required: 1. What is the standard cost of a single backpack? 2. What was the actual cost per backpack produced during March? (Round your answers to 2 decimal places.) 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).)       5. What is the standard direct labor rate per hour? What was the labor rate variance for March? The labor efficiency variance? (Do not round your 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)) 7. What was the variable overhead rate variance for March? The variable overhead efficiency variance? (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)) 8. Prepare a standard cost card for one backpack. (Round your answers to 2 decimal places.)

Answer 1

(1) Standard cost of Single Backpack :-           

Material (15360/600)	25.6
Labour (9000/600)	15
Variable O/H (1800/600)	3
Standard cost of Single Backpack	43.60

(2)     Actual cost of Single Backpack :-           

   Difference between standard and actual cost per backpack produced during March = 0.20 (F)

       Actual cost of Single Backpack = 43.6 – 0.20 = 43.40

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

    Std cost of material =15360

     Std Rate = $ 8 per yard

    Std cost per Back pack = 15360/8 = 1920

     Actual output = 600 Backpack

    Std qty per Backpack = 1920/600 = 3.2

(4) Material Price Variance :-

        Material Cost Variace = Std cost – Actual cost

                     = 15360 – 14210 = 1150 (F)

     Material Qty Variance = 880(U)

Material Cost Variance = Material Price Variance + Material Qty Variance

                    1150(F) = MPV + 880(U)

   MPV = 2030 (F)

(5) Standard direct labor rate per hour:-

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

             = 1800/2 = 900 hrs

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

                        = 9000/900 = $10 per hr

(6) Labour Rate Variance :-

        (Std Rate – Actual Rate) * Actual hrs

Actual Total cost per Back Pack = 43.40

Actual total cost of 600 Back pack – 600*43.40 = 26040

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

                         = 26040 – 14210 – 2033 = 9797

Actual Rate per hr = 9797/970 hrs = 10.1

=( Std Rate – Actual Rate) * Actual hrs

=(10 – 10.10) * 970 = 97(U)

(7) Variable O/H Rate Variance :-

                 (Std Rate – Actual Rate) * Actual hrs

Std Rate = 2 per hr

Actual rate = 2033 / 970 hrs = 2.0959

=(2 – 2.0959) * 970 = 93.023(U)