Problem 10-16 Comprehensive Variance Analysis [LO10-1, L010-2, LO10-3] Highland
ID: 2549933 • Letter: P
Question
Problem 10-16 Comprehensive Variance Analysis [LO10-1, L010-2, LO10-3] Highland Company produces a lightweight backpack that is popular with college students. Standard varlable costs relating to a single backpack are given below: Standard Quantity or Hours Standard Price or Rate Standard Direct materials Direct labor $6.00 per yard per direct $ 2 labor-hour Variable manufacturing overhead Total standard cost per unit Overhead is applied to production on the basis of direct labor-hours. During March, 480 backpacks were manufactured and sold Selected information relating to the month's production is given below: Variable Materials Used 12, 672 $11, 360 Direct anufacturing Labor $4,896 Overhead $1,152 $1,024 Total standard cost allowed* Actual costs incurred Materials price variance Materials quantity variance Labor rate variance $ 960 U 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 Difference between standard and actual cost per 720 0.15F backpack produced during March Required Hint: It may be helpful to complete a general model diagram for direct materials, direct labor, and varlable 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 varlance 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 varlance for March? The labor efficiency varlance? 7. What was the varlable overhead rate variance for March? The varlable overhead efficiency varlance? 8. Prepare a standard cost card for one backpack.Explanation / Answer
1) Total standard cost allowed for 480 backpacks = Materials+Direct Labor+Variable manufacturing Overhead
= $12,672+$4,896+$1,152 = $18,720
Standard cost per backpack = Total standard cost allowed/480 backpacks
= $18,720/480 backpacks = $39 per backpack
2) Standard cost per backpack = $39
Difference between standard and actual cost per backpack = 0.15 F
The difference between standard cost and actual cost is favorable it means actual cost is less than standard cost
Actual cost per backpack = Standard Cost - Difference
= $39 - $0.15 = $38.85
3) Standard cost per backpack = Standard cost allowed for materials/480 backpacks
= $12,672/480 = $26.4 per backpack
Standard Price per yard = $6 per yard
Standard material required per backpack = Standard cost per backpack/Standard Price per yard
= $26.4/$6 = 4.4 yards
4) For calculating Material price variance we need to calculate actual materials used which is calculated by given materials quantity variance.
Materials Quantity Variance = (Std Materials - Actual Materials)*Std Price
-$960 = [(480 backpacks*4.4 yards) - Actual Materials)*$6
-$960/$6 = 2,112 yards - Actual Materials used
Actual Materials used = 2,112+($960/$6)
= 2,112+160 = 2,272 yards
Actual Price = Actual Materials cost/Actual material
= $11,360/2,272 yards = $5 per yard
Materials Price Variance = (Std Price - Actual Price)*Actual materials used
= ($6 - $5)*2,272 = $2,272 Favorable
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