Highland Company produces a lightweight backpack that is pop

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 Variable manufacturing overhead $2 per direct labor-hour Total standard cost $7 Overhead is applied to production on the basis of direct labor-hours. During March, 610 backpacks were manufactured and sold. Selected information relating to the month\'s production is given below: Materials Used Direct Labor $10,065 $14,640 $13,650 $1,830 $2,011 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 $960U

Solution

(1) Standard cost of Single Backpack :-           

Material

14640

Labour

10065

Variable O/H

1830

Total

26535

Backpack

610

Standard cost of Single Backpack (26535/610)

43.5

(2)     Actual cost of Single Backpack :-           

  

Standard cost of Single Backpack

43.50

Difference between standard and actual cost per backpack produced during March

-0.20

Actual cost per backpack

43.30

(3) Yards of material are required at standard per backpack :-

Total Std cost of Material

14640

No of Backpack produced

610

Std Material Cost per backpack (14640/8)

1830

Std material cost per yard

8

No of yd per backpack (1830/8)

3

   

(4) Material Price Variance :-

       

Material Price Variance

1950(F)

Material Qty Variance

960(U)

Spending Variance

990(F)

Material Cost Variace = Std cost – Actual cost

                     = 14640 – 13650 = 990(F)

     Material Qty Variance = 960(U)

Material Cost Variance = Material Price Variance + Material Qty Variance

                    990(F) = MPV + 960(U)

   MPV = 1950 (F)

(5) Standard direct labor rate per hour:-

Std Variable O/H

1830

Std O/H Rate per hr

2

Std Direct labour hrs (1830/2)

915

Std direct labour cost

10065

Std labour hr rate (10065/915)

11

     

(6)

Labour Rate Variance

192(U)

Labour Efficiency Variance

495(U)

Labour Rate Variance :-

        (Std Rate – Actual Rate) * Actual hrs

Actual Total cost per Back Pack = 43.30

Actual total cost of 610 Back pack – 610*43.30 = 26413

Actual Labour cost = Actual total cost – Actual Material cost – Actual variable cost

                         = 26413 – 13650 – 2011= 10752

Actual Rate per hr = 10752/960 hrs = 11.2

=( Std Rate – Actual Rate) * Actual hrs

=(11 – 11.20) * 960= 192(U)

Labour Efficiency Variance = (S hrs – A hrs) * SR

(915 – 960) * 11 = 495(U)

(7)

V. O/H Rate Variance

91(U)

V. O/H Efficiency Variance

90(U)

Variable O/H Rate Variance :-

                 (Std Rate – Actual Rate) * Actual hrs

Std Rate = 2 per hr

Actual rate = 2011 / 960 hrs = 2.0948

=(2 – 2.0948) * 960 = 91(U)

V. O/H Efficiency Variance = (S hrs – A hrs) * SR

(915 – 960) * 2 = 90(U)

Material	14640
Labour	10065
Variable O/H	1830
Total	26535
Backpack	610
Standard cost of Single Backpack (26535/610)	43.5