Question

Problem 10-16 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Highland Company produces a lightweight backpack that is popular with college students. Standard variable costs relating to a single backpack are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials ? $ 6.00 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, 400 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* $ 9,120 $ 5,040 $ 960 Actual costs incurred $ 5,520 ? $ 2,620 Materials price variance ? Materials quantity variance $ 1,920 U Labor rate variance ? Labor efficiency variance ? Variable overhead rate variance ? Variable overhead efficiency variance

Answer 1

Answer and Explanation:

Particulars Amount

Standard variable manufacturing overhead cost for march $960

Standard variable manufacturing overhead rate per direct labor hour $2

Standard direct labor hours for march

=960/2

= $ 480

Standard direct labor rate per hour

=$ 5,040/$480

= $ 10.5

The labor efficiency variance

Actual Cost per unit of back pack production

=(9,120+5,040+960)/(400)

=15,120/400

=$ 37.8

Total Number of produced Back packs 400

Total Actual cost of production $ 15,120

Less: Actual cost of materials $5,520

Actual cost of manufacturing Overhead 2,620

Actual cost of Direct Labor 6,980

Labor efficiency varaince = 5040-6980 = -$ 1940

Variable overhead rate variance=(Actual Hour*Actual Rate)-(Actual Hour of input*Standard Rate)

=(2620*2)

= $ 5240

Variable overhead rate variance = $ 5240