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 Standard Price Standard or Rate Direct materials Direct labor $6.00 per yard per direct labor. Variable manufacturing overhead Total standard cost per unit Overhead is applied to production on the basis of direct labor-hours. During March, 520 backpacks were manufactured and sold. Selected information relating to the month's production is given below. Materials Direct Labor $7.280 Variable Manufacturing Overhead $1.456 $ 14,325 Total standard cost allowed Actual costs incurred Materials price variance Materials quantity variance 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 Difference between standard and actual cost per backpack produced during March 0.2

Answer 1

Solutions:

Solution 1: Computation of Standard cost of a Single Backpack Standard cost for March Production Materials Direct Labor Variable Manufacturing Overhead Total Standard Cost Number of Backpacks Produced Standard cost of a single Backpack $15,600 $7,280 $1,456 $24,336 520 $46.80 13 14 15 Solution 2: Computation of Actual cost per Backpack Standard cost of a single Backpack Less: Difference Between Standard and actual Cost Actual Cost per Backpack 16 $46.80 $0.20 $46.60 18 Solution 3: Computation of Number of yards at standard per Backpack Total Standard cost of materials allowed during march /Number of Backpacks Produced during march Standard material cost per Backpack /Standard material cost per yard Number of yards per Backpack $15,600 520 $30.00 $6.00 5.00 25 26 27 28 30 31 32 Solution 4: Material price variance = Total material variance - Material quantity variance Total material cost variance = $15600 - $14325= $1275 F Material quantity variance = $1590 U Material price variance = $1275 F -($1590 U) = $2865 F 33 34 35 36 37 Material Price Variance Material Quantity Variance Spending Variance $2,865 F $1,5900 $1,275 F 38 39 41 42 Solution 5: Computation of standard Direct labor rate per hour Standard Variable manufacturing overhead cost Standard Variable manufacturing overhead rate per hour Standard Direct labor hours for March Standard Direct labor Cost for march Standard direct labor rate per hour $1,456 $2 728 $7,280 $10.00 44 45 AC et592 Sheet79 (9) Sheet594 Sheet524 (2) Sheet524 (4) )

45 46 Solution 6: 49 50 Total actual cost of backpack produced = 520* $46.60 = $24,232 51 Direct labor cost incurred = $24232 - $14325-$1717 = $8,190 52 53 54 Actual direct labor hours = 780 hours Actual rate of Direct labor = $8190 / 780 = $10.50 per hour Direct labor rate variance = (SR - AR) * AH = ($10 - $10.50) *780 = $390 U Direct labor efficiency variance = (SH - AH) * SR = (728-780) * $10.00 = $520 U 62 Solution 7: 65 Actual rate of variable overhead = $1717/780 = $2.201282 per hour 67 68 Variable overhead rate variance = (SR - AR) * AH = ($2 - $2.201282) *780 = $157 U Variable overhead efficiency variance = (SH - AH) * SR = (728-780) * $2 = $104 U 70 71 72 73 74 75 76 77 78 79 80 81 84 86 87 et592 Sheet79 (9) Sheet594 Sheet524 (2) Sheet524 (4) )

K L M к 16 17 18) 19 Solution 8: 20 21 22 Direct material 23 Direct labor (728/520) 24 Variable overhead Standard cost Card - Highland Company Standard Quantity or Standard price or rate Hours 5 yards $6.00 Per Yard 1.4 hours $10.00 Per DLH 1.4 hours $2.00 Per DLH Standard Cost $30.00 $14.00 $2.80 25 26 Standard cost per unit $46.80 27 28 29 30 55 56 57 58) 59 et592 Sheet79 (9) Sheet594 Sheet524 (2) Sheet524 (4) )