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 ? $ 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, 680 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* $ 16,320 $ 13,600 $ 2,176 Actual costs incurred $ 15,425 ? $ 3,802 Materials price variance ? Materials quantity variance $ 2,190 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 1,020 Difference between standard and actual cost per backpack produced during March $ 0.10 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

		DATA GIVEN
	A	Standard price of direct materials per yard	$6
	B	Standard Variable manufacturing overhead rate per direct labour hour	$2
	C	Quantity of production (units)	680
	D	Standard material cost	$16,320
	E	Standard Direct labor	$13,600
	F	Standard Variable overhead	$2,176
	G	Actual material cost	$15,425
	H	Actual Direct labor	$3,802
	I	Material Quantity variance	$2,190	Unfavourable
	J	Actual direct labor hour	1,020
	K	Difference between standard and actual cost per bag	$0.10	Favourable
			Standard cost
			per unit
	L=D/C	Standard material cost	$24
	M=E/C	Standard Direct labor	$20
	N=F/C	Standard Variable overhead	$3
		Total standard cost per unit(per bag)	$47.00
		Actual cost per bag	$46.90	(47-0.1)
	1	Standard cost of a single bagpack	$47.00
	2	Actual cost per bagpack produced in march	$46.90
	3	Standard Quantity of material required:
	L	Standard cost of material per bag	$24
	A	Standard price of direct material per yard	$6
	P=L/A	Standard quantity of materials required in yards	4	Yards
	4	Material Price Variance
	Q=P*680	Standard quantity of materials required for 680 bags	2720
	A	Standard price per yard	$6
	I	Material quantity variance	$2,190	Unfavourable
		Material quantity variance=standard price*(Standard Quantity-Actual quantity)
		6*(2720-Actual Quantity)=-2190
		2720-Actual Quantity=2190/6=	-365.00
	R	Actual Quantity of materials used=2720+365=	3085.00	yards
	G	Actual material cost	$15,425
	S=G/R	Actual price of materials	$5.00
		Material Price variance=Actual Quantity*(Standard price-Actual Price)
		Material price variance=3085*(6-5)	$3,085.00	FAVOURABLE
	5	Standard Direct labor rate per hour
	N	Standard Variable manufacturing overhead per bag	$3
	B	Variable overhead rate per direct labor hour	$2
	T=N/B	Standard Direct labor hour per unit	1.50
	M	Standard direct labor cost per unit	$20
	U=M/T	Standard direct labor rate per hour	$           13.33