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 $8.00 per yard Standard Cost Direct materials Direct labor per direct labor- 2 hour $ Variable manufacturing overhead Total standard cost per unit 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 $ 15,360 $ 13,965 Direct Labor $9,000 Variable Manufacturing Overhead $1,800 $2,985 $ 600 U 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 non. *For the month's production. The following additional information is available for March's production: Actual direct labor-hours 900 Difference between standard and actual cost per backpacks 0.20 produced during March 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.

Answer 1

Highland Company
Part 1
Standard cost for March prod.
Materials	15360
Direct labour	9000
Variable Mfg. OH	1800
Total Std. cost	26160
No. of Backpacks produced	600
Std. cost of a single backpack	43.6
Part 2
Standard cost of a single backpack	43.6
less:- Difference	-0.2
Actual cost per backpack	43.4
Part 3
Total Std. cost of materials ( a)	15360
No. of Backpacks produced (b)	600
Std. Mat. Cost per backpack ( a/b) ( c )	25.6
Std. Mate. Cost per yard (d)	8
NO. of yards per backpack (c/d )	3.2
Part 4
MPV ( balancing figure ) (1395 + 600 )	1995	(F)
MQV	600	(U)
Spending variance ( 15360 - 13965 )	1395	(F)
Part 5
Std. var. Mfg. oH (a)	1800
Std. var. Mfg. oH per DLH (b)	2
Std. DLH ( a/b) ( c )	900
Std. direct labour cost (d)	9000
Std. DL rate per hour (d / c)	10
Part 6
LRV (balancing figure )	90	(U)
LEV ( Std. hours allowed for actual production - Actual hours) * SR
( 900 - 900 ) * 10	0
Spending variance ( 9000 - 9090 ) [ for 9090 see working note below ]	90	(U)
Working notes
Actual cost for March prod.
Materials	13965
Direct labour ( balancing figure )	9090
Variable Mfg. OH	2985
Total Actual cost ( 43.4 * 600)	26040
No. of Backpacks produced	600
Actual cost of a single backpack	43.4
Part 7
VOH rate variance (balancing figure )	1185	(U)
VOH efficiency variance:- ( Std. hours allowed for actual production - Actual hours) * SR
( 900 - 900 ) * 2	0	(U)
Spending variance ( 1800 - 2985 )	1185	(U)
Part 8 - Standard cost card	Std. qty. or hours	SP or SR	Std. cost
Direct materials	3.2 yards	8	25.6
Direct labour	1.5 DLH	10	15
VOH	1.5 DLH	2	3
Total standard cost	( 900 / 600 = 1.5 )		43.6