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, 400 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*	$	9,120		$	5,040		$	960
Actual costs incurred	$	5,520			?		$	2,620
Materials price variance		?
Materials quantity variance	$	1,920	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		600
Difference between standard and actual cost per backpack produced during March	$	0.20	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

Highland Company
Part 1
Standard cost for March prod.
Materials	9120
Direct labour	5040
Variable Mfg. OH	960
Total Std. cost	15120
No. of Backpacks produced	400
Std. cost of a single backpack	37.8
Part 2
Standard cost of a single backpack	37.8
less:- Difference	-0.2
Actual cost per backpack	37.6
Part 3
Total Std. cost of materials ( a)	9120
No. of Backpacks produced (b)	400
Std. Mat. Cost per backpack ( a/b) ( c )	22.8
Std. Mate. Cost per yard (d)	6
NO. of yards per backpack (c/d )	3.8
Part 4
MPV ( balancing figure ) ( 3600 + 1920 )	5520	(F)
MQV	1920	(U)
Spending variance ( 9120 - 5520 )	3600	(F)
Part 5
Std. var. Mfg. oH (a)	960
Std. var. Mfg. oH per DLH (b)	2
Std. DLH ( a/b) ( c )	480
Std. direct labour cost (d)	5040
Std. DL rate per hour (d / c)	10.5
Part 6
LRV (balancing figure )	600	(U)
LEV ( Std. hours allowed for actual production - Actual hours) * SR
( 480 - 600 ) * 10.5	1260	(U)
Spending variance ( 5040 - 6900 ) [ for 6900 see working note below ]	1860	(U)
Working notes
Actual cost for March prod.
Materials	5520
Direct labour ( balancing figure )	6900
Variable Mfg. OH	2620
Total Actual cost ( 37.6 * 400)	15040
No. of Backpacks produced	400
Actual cost of a single backpack	37.6
Part 7
VOH rate variance (balancing figure )	1420	(U)
VOH efficiency variance:- ( Std. hours allowed for actual production - Actual hours) * SR
( 480 - 600 ) * 2	240	(U)
Spending variance ( 960 - 2620 )	1660	(U)
Part 8 - Standard cost card	Std. qty. or hours	SP or SR	Std. cost
Direct materials	3.8 yards	6	22.8
Direct labour	1.2 DLH	10.5	12.6
VOH	1.2 DLH	2	2.4
Total standard cost	( 480 / 400 = 1.5 )		37.8