Highland Company produces a lightweight backpack that is popular with college st
ID: 2412623 • Letter: H
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 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 $960UExplanation / Answer
(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
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