Question

True Colour Inc. manufactures waterproof laptop backpacks. The standard cost card of a single backpack is given below:

	Standard Quantity or Hours	Standard Price or Rate			Standard Cost
Direct materials	?	$	4.00	per yard	$	?
Direct labor	?		?			?
Variable manufacturing overhead	?	$	2	per direct labor-hour		?
Total standard cost per unit					$	?

Overhead is applied to production on the basis of direct labor-hours. During March, 700 backpacks were manufactured and sold. Selected information relating to the month’s production is given below:

	Materials Used			Direct Labor			Variable Manufacturing Overhead
Total standard cost allowed*	$	11,200		$	10,500		$	2,100
Actual costs incurred	$	8,925			?		$	4,032
Materials price variance		?
Materials quantity variance	$	700	U
Labor rate variance					?
Labor 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		1,050
Difference between standard and actual cost per backpack produced during March	$	0.34	F

Required:

Hint: It may be helpful to complete a general model diagram for direct materials, direct labor, and variable 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 variance for March if there were no beginning or ending inventories of materials?

Answer 1

1. Standard cost of single backpack = ($11200+10500+2100)/700 = $34 per backpack

2. Actual Cost per backpack = $34 - $0.34 = $33.66 per backpack

3. Yards of material required at standard per backpack = $11200 / (700 x $4) = 4 yards per backpack

4.
Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
$700 = (Actual Quantity - 2800) x $4
Actual Quantity = 2975 yards

Material Price Variance = Actual Material cost - Actual Quantity x Standard Price
= $8925 - 2975 x 4 = $2975 (F)