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	per yard	$	?
Direct labor	?		?			?
Variable manufacturing overhead	?	$	3	per direct labor-hour		?
Total standard cost per unit					$	?

 

Overhead is applied to production on the basis of direct labor-hours. During March, 1,000 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*	$	16,800		$	21,000		$	4,200
Actual costs incurred	$	15,000			?		$	3,600
Materials price variance		?
Materials quantity variance	$	1,200U
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		1,500
Difference between standard and actual cost per backpack produced during March	$	0.15	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

Variance Analysis: It refers to a quantitative measurement of the deviations between the actual cost or quantity and the budgeted cost or amount to control a company's operational performance.

1.

Calculate the standard cost of a single backpack.

2.

Calculate the actual cost per back.

3.

Calculate the numbers of yards of material are required at the standard per backpack.

Working note:

Calculate the standard material per backpack.

4.

Calculate the materials price variance for March if there were no beginning or ending inventories of materials.

Working notes:

5.

Calculate the standard direct labor rate per hour.

Working note:

Calculate the standard direct labor hours.

6.

Calculate the labor rate variance and labor efficiency variance.

Labor efficiency variance:

 

Labor rate variance:

Working notes:

1.

Determine the actual rate of labor

2.

Determine the actual cost of direct labor.

Particulars	Amount ($)
The total actual cost of production (refer to note 2)	41,850
Less: Actual cost of materials	(15,000)
Less: Actual cost of variable manufacturing overhead	(3,600)
The actual cost of direct labor	23,250

3.

Determine the total actual cost of production.

 

7.

Calculate the variable overhead rate variance and variable overhead efficiency variance for March.

Variable overhead rate variance:

 

Variable overhead efficiency variance:

8.

Prepare a standard cost card for one backpack.

Particulars	Standard Quantity or Hours (A)	Normal Price or Rate (B)	Typical Cost (A×B)
Direct materials	2.8	$6	$16.80
Direct labor (refer note )	1.4	$15	$21
Variable manufacturing overhead for direct labor hours	1.4	$3	$4.20
Total standard cost			$42

Working note:

Determine the direct labor hour per backpack.