Outdoor Company manufactures camping tents from a lightweight synthetic fabric.

Question

Outdoor Company manufactures camping tents from a lightweight synthetic fabric. Each tent has a standard materials cost of $21, consisting of 4 yards of fabric at $5.25 per yard. The standards call for 2 hours of assembly at $10 per hour. The following data were recorded for October, the first month of operations :

REQUIRED

A.) Compute all standard cost variances for material and labor.

B.) Give one possible reason for each of the preceding variances.

C.) Determine the standard variable cost of the 1700 tents produced, separated into direct materials and labor.

FABRIC PURCHASED 9000 YARDS X $5.00 PER YARD FABRIC USED IN PRODUCTION OF 1700 TENTS 7000 YARDS DIRECT LABOR USED 3600 HOURS X $10.75 PER HOUR

Explanation / Answer

STandard Material ost for 1700 tents = 1700*4*5.25 = 35700

Actual Material ost for 1700 tents = 9000 *5.25 = 47250

Material cost variance = 12250 (A)

STandard Labour cost for 1700 tents = 1700*2*10 = 34000

Actual Labour cost for 1700 tents = 3600*10.75 = 38700

Labour cost variance = 4700(A)

b) Material Variance has arised because of the increased use of the materials than the budgeted use.

Labour variance has arisen because of the increased labour rate as well as the more number of labour hours.

c) Standard cost of 1700 tents :

Direct Materials   1700*4*5.25 = 35700

Labor 700*2*10 = 34000

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