Highland Company produces a lightweight backpack that is popular with college st

Question

Highland Company produces a lightweight backpack that is popular with college students. Standard variable costs relating toa single backpack are given below: Standard Qtity Standard Price Standard or Hours or Rate Cost $6 per yard Direct materials Direct labor Variable manufacturing overhead ?$3 per direct labor-hour? Total standard cost per unit Overhead is applied to production on the basis of direct labor-hours. During March, 1,000 backpacks were manufactured and sold. Selected information relating to the month's production is given below

Explanation / Answer

1 Standard cost for 1000 backpacks: Direct material 16800 Direct labor 21000 Variable manufacturing overhead 4200 42000 Standard cost per backpack=42000/1000=$42 per backpack 2 Standard cost per backpack 42 Less:Favorable variance 0.15 Actual cost per backpack 41.85 3 Standard cost of material 16800 (For 1000 backpack) Standard cost of material per backpack (16800/1000) 16.8 Standard quantity=Standard cost/Standard price=16.8/6=2.8 yards per backpack 4 Standard cost of material 16800 Less:Actual cost incurred 15000 Material cost variance 1800 F Material cost variance=Material price variance+Material quantity variance 1800=Material price variance-1200 Material price variance=1800+1200=3000 (F) 5 Standard direct labor rate per hour can be computed using variable manufacturing overhead since overhead is applied to production on the basis of direct labor hours. Direct labor hours=Standard variable manufacturing overhead/Standard rate=4200/3=1400 hours Standard direct labor rate=Standard labor cost/Direct labor hours=21000/1400=$15 per hour 6 Actual cost per backpack 41.85 Number of backpack 1000 Actual cost (41.85*1000) 41850 Less: Actual material cost 15000 Actual variable manufacturing cost 3600 18600 Actual labor cost 23250 (Actual hour*Actual Rate) Actual labor hours 1500 Actual rate per hour 15.5 (23250/1500) Labor rate variance=Actual hours*(Standard rate-Actual rate)=1500*(15-15.5)=750 (U) Labor efficiency variance=Standard rate*(Standard hours-Actual hours)=15*(1400-1500)=1500 (U) 7 Actual rate for variable overhead=Actual variable overhead/Actual labor hours= 3600/1500=$2.4 per hour variable overhead rate variance=Actual hours*(Standard rate-Actual rate)=1500*(3-2.4)=900 (F) Variable overhead efficiency variance=Standard rate*(Standard hours-Actual hours)=3*(1400-1500)=300 (U) 8 Standard cost card for one backpack: Standard quantity or hours Standard price or rate Standard cost Direct materials 2.8 yard $6 per yard 16.8 Direct labor 1.4 hour $15 per hour 21 (1400/1000) Variable manufacturing overhead 1.4 hour $3 per hour 4.2 Total 42

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