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:

Fabric purchased ……..……..……..……..….. 9,000 yards x $5.00 per yard
Fabric used in production of 1,700 tents …….. 7,000 yards
Direct labor used ……..……..……..……..….. 3,600 hours x $10.75 per hour

Required
a. Compute all standard cost variances for materials and labor.
b. Give one possible reason for each of the preceding variances.
c. Determine the standard variable cost of the 1,700 tents produced, separated into direct materials and labor.

Explanation / Answer

a)

Standard Material cost for 1700 tents:

= 1700*4*5.25

= $35,700

Actual Material cost for 1700 tents:

= 9000 *5.25

= $47,250

Material cost variance = $12,250 (A)

Standard labor cost for 1700 tents:

= 1700*2*10

= $34,000

Actual Labor cost for 1700 tents:

= 3600*10.75

= $38,700

Labor cost variance = $4,700(A)

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

Labor variance has arisen because of the increased labor rate as well as the more number of labor hours.

c) Standard cost of 1700 tents:

Direct Materials:

= 1700*4*5.25

= $35,700

Labor:

= 700*2*10

= $34,000

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