Adventure Company manufactures camping tents from a lightweight synthetic fabric

Question

Adventure Company manufactures camping tents from a lightweight synthetic fabric. Each tent has a standard materials cost of $42, consisting of 4 yards of fabric at $10.50 per yard. The standards call for 2 hours of assembly at $20 per hour. The following data were recorded for October, the first month of operations:

(a) Compute all standard cost variances for materials and labor.

(b) Determine the standard variable cost of 1,700 tents produced, separated into direct materials and labor.

Fabric Purchased 9,000 yards x $10.00 per yard Fabric used in production of 1,700 tents 7,000 yards Direct Labor Used 3,600 hours x $21.50 per hour

Explanation / Answer

ReqA: Std quantity required per unit of output 4 yards Actual output 1700 units Std quantity required for actual output ( 1700*4) 6,800 yards Std price per yard     $ 10.50 per yard Actual price per yard $ 10.00 per yard Actual Quantity purchased   9,000 yards Actual quantity consumed for production 7,000 yards Material Price Variance (Usage basis) = Actual Quantity consumed (Std price per yard - Actual price per yard) 7,000 ( 10.50 -10.00 ) = $ 3,500 favorable Material Price Variance (purchase basis) = Actual Quantity purchased (Std price per yard - Actual price per yard) 9,000 ( 10.50 - 10.00) = $ 4,500 favorable Material Quantity variance= Std price per yard (Std quantity for actual output - Actual quantity consumed)                10.50 ( 6,800 - 7,000) = $ 2,100 unfavorable Std hours required per unit of output   2 hours Actual production    1700 units Std labour hours for actual production ( 1700*2)   3400 hours Std rate per hour   $ 20 per hour Actual labour hours 3600 hours Actual rate per hour $21.50 per hour Labour rate variance = Actual labour hours used (Std rate per hour - Actual rate per hour ) 3600 ( 20.00 - 21.50 ) = $ 5,400 Labour Efficiency variance = Std rate per hour ( Std horus required for actual output- Actual hours used) 20.00 ( 3400 - 3600) = $4,000 ReqB: Std cost for output of 1700 tents: Direct material (6800 yards @ 10.50) 71400 Direct labour(3400 hours @20) 68000 Total Std variable cost 139400

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