Question

Problem 10-16 (Algo) Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Highland Company produces a lightweight backpack that is popular with college students. Standard varlable costs relating to a single backpack are given below: Standard Quantity Standard Price Standard or Hours or Rate Cost $4.00 per yard Direct materials Direct labor per direct 2 labor-hour Variable manufacturing overhead Total standard cost per unit Overhead is applied to production on the basis of direct labor-hours. During March, 700 backpacks were manufactured and sold. Selected information relating to the month's production is glven below: ariable Manufacturing Overhead Materials Direct Labor Used $11,200 Total standard cost allowed Actual costs incurred $10,500 $2,100 $4,032 8,925 Materials price variance Materials quantity variance Labor rate variance 700 U 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 1,050 0.34 F

Answer 1

Key data for solving standard costing problem given in suitable format.

	Standad for Actual Units produced			Actual quantity produced = 700 units
Particulars	Standard Quantity or Hours	Standard Price or Rate	Standard Cost	Actual Quantity or Hours	Actual Price or Rate	Actual Cost
	SQ/SH	SP/SR	SC	AQ/AR	AP/AR	AC
	(a)	(b)	(a) x (b) = ©	(d)	(e)	(d) x (e) = (f)
Direct material	2800.00	$            4.00	$    11,200.00	2975.00	$                      3.00	$     8,925.00
Direct Labor	1050.00	$          10.00	$    10,500.00	1050.00	$                    10.10	$   10,605.00
Variable Manufacturing Overhead	1050.00	$            2.00	$      2,100.00	1050.00	$                      3.84	$     4,032.00
	Total Standard cost		$       23,800.00	Total Actual Cost		$      23,562.00

.

Answer 1.

Standard cost per Backpack

= Total standard cost/No of units produced

= 23800 / 700

=34.00 per backpack

.

Answer 2. actual cost per backpack
Standard cost per backpack	34
Less:- Difference between standard and actual cost per backpack	-0.34
Actual cost per backpack	33.66
Therefore, Total Actual Cost of 700 Backpacks	23562
Actual Direct Labor (Balancing Figure See Table)	10605

.

Answer 3. Standard Material required per backpack (in Yards)

= standard cost/ (standard cost per yard x Number of units)

= 11200/ (4 x 700)

= 4 yards per Backpack

.

Answer 4.

(a) Calculating Actual quantity using Material Usage Variance formula,

Material Usage Variance = (SQ – AQ) × SP

700 (U) = [2800 – AQ] x 4

-700 = (2800 – AQ) x 4

-700/4 = 2800 - AQ

=-175 = 2800 - AQ

AQ = 2975 yards

(b) Material Price Variance formula

Material Price Variance = Standard Cost of Actual Quantity – Actual Cost

= (SP – AP) × AQ

= (4.00 - 3.00) x 2975

= 2975 (F)

Material Price Variance = 2975 (F)

Answer 5.

Standard Labor Rate = $ 10 per Hour

Answer 6.

(a) Labor Rate Variance

= Standard Cost of Actual Time – Actual Cost

= (SR – AR) × AH

= (10 - 10.10) x 1050

= 105 (U)

Labor Rate Variance = 105 (U)

(b) Labor Efficiency Variance

= standard cost of standard Time for Actual Production – standard cost of Actual Time

= (SH – AH) × SR

= (1050 - 1050) x 10

= 0

Labor Efficiency Variance = 0

Answer 7.

(a) Variable Overhead Rate Variance

= (SRR – ARR) × AH

= (2 - 3.84) x 1050

= 1932 (U)

Variable Overhead Rate Variance = 1932 (U)

(b) Variable Overhead Efficiency Variance

= (SH – AH) × SRR

= (1050 - 1050) x 2

= 0

Variable Overhead Efficiency Variance = 0