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			$?

  

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	$5,340	?	$827
Materials price variance	?
Materials quantity variance	$ 400 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	700
Standard overhead rate per direct labor-hour	$2.00
Difference between standard and actual cost per backpack produced during March	$0.15	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?

     

6.	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 one backpack
Standard cost for March Production
Direct Material	$6,720
Direct Labour	$4,368
Variable Manufacturing Overhead	$1,092
Total Standard Cost	$12,180
Number of backpack produced	420
Standard cost per backpack	$29
2. Actual cost per backpack produced during March
Standard cost per backpack	$29
Less: Difference between standard and
actual cost per backpack (F)	$0.15
Actual cost per backpack	$28.85
3. Yards of material required at standard per backpack
Standard cost of material allowed	$6,720
Number of backpack produced	420
Standard cost of material per backpack	$16
Yards of material required at standard per backpack = Standard cost of material per backpack
standard rate per yard
= $16/$4
= 4 yards per backpack
4. Material Price variance for March if there were no beginning or ending inventories of material
Standard Cost of material	$6,720
Actual cost of material	$5,340
Total variance	$1,380
As there were no beginning or ending inventories of material, all material purchased was used
in production, thus price and quantity variance together equal the total variance
Total Variance	$1,380	F
Add: Quantity variance	$400	U
Price Variance	$1,780	F
5. Standard direct labour rate per hour
Standard Variable manufacturing overhead	$1,092
Standard Variable manufacturing overhead rate
per direct labour hour	$2
Standard direct labour hour (1092/2)	546
Standard direct labour for March	$4,368
Standard direct labour rate per hour (4368/546)	$8
6. Labour rate variance for March
First we have to calculate actual cost for March
Actual cost per backpack	$28.85
Number of backpack produced	420
Actual cost for March	$12,117
Less: Direct Material	$5,340
Variable Manufacturing overhard	$827
Actual labour cost for March	$5,950
Actual direct labour hour for March	700
Actual direct labour rate per houor	$8.50
Actual hour at actual rate (700 x $8.50)	$5,950
Actual hour at standard rate (700 x $8)	$5,600
Labour Rate variance	$350	U
Actual hour at standard rate (700 x $8)	$5,600
Standard hour at standard rate (546 x $8)	$4,368
Labour efficiency variance	$1,232	U
Labour Rate variance	$350	U
Labour efficiency variance	$1,232	U
Total Variance	$1,582	U
7. Variable overhead rate variance
Actual hour at actual rate	$827
Actual hour at standard rate (700 x $2)	$1,400
Variable overhead rate variance	$573	F
Variable overhead efficiency variance
Actual hour at standard rate (700 x $2)	$1,400
Standard hour at standard rate (546 x $2)	$1,092
Variable overhead efficiency variance	$308	U
Variable overhead rate variance	573	F
Variable overhead efficiency variance	308	U
Total Variance	265	F
8. Standard cost card for one backpack
	Standard Quantity or Hours	Standard Price or Rate	Standard Cost
Direct Material	4 yards	$4 per yard	$16
Direct Labour	1.30 hours	$8 per hour	$10.40
Variable manufacturing overhead	1.30 hours	$2 per hour	$2.60
Total Standard Cost			$29
Standard labour hour per backpack = standard labour for march/number of backpacks
= 546/420 = 1.30