PROBLEM 8-16A Comprehensive Variance PROBLEM (LO1, LO2, LO3, LO4) CHECK FIGURE (1) Standard cost: $33.75 (3) 2.70 yards per backpack Celtron Inc. 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 ? $6.50 per yard ? Direct labor ? ? ? Variable manufacturing overhead ? $2.80 per direct-labor hour ? Total standard cost ? Overhead is applied to production on the basis of direct labor-hours. During September, 1,000 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 for the month’s production $17,550 $12,000 $4,200 Actual costs incurred $14,700 ? $3,500 Materials price variance ? Materials quantity variance $650 U Labor rate variance ? Labor efficiency variance ? Variable overhead spending variance ? Variable overhead efficiency variance ? The following additional information is available for September’s production: Actual direct labor-hours 1,600 Difference between standard and actual cost per backpack produced during September $2.15 F There were no beginning or ending inventories of raw materials. Required: 1. What is the standard cost of a single backpack? 2. What was the actual cost per backpack produced during September? 3. How many yards of material are required at standard per backpack? 4. What was the materials price variance for September? 5. What is the standard direct labor rate per hour? 6. What was the labor rate variance for September? The labor efficiency variance? 7. What was the variable overhead spending variance for September? The variable overhead efficiency variance? 8. Prepare a standard cost card for one backpack.

1. / Standard cost for September production:
Materials...... / $17,550
Direct labor...... / 12,000
Variable manufacturing overhead...... / 4,200
Total standard cost (a)...... / $33,750
Number of backpacks produced (b)...... / 1,000
Standard cost of a single backpack (a) ÷ (b)...... / $33.75
2. / Standard cost of a single backpack (above)...... / $33.75
Deduct favorable variance between standard and actual cost...... / (2.15)
Actual cost per backpack...... / $31.60
3. / Total standard cost of materials used during September (a)...... / $17,550
Number of backpacks produced during September (b)...... / 1,000
Standard materials cost per backpack (a) ÷ (b)...... / $17.55
4. / Standard cost of material used...... / $17,550
Actual cost of material used...... / 14,700
Total variance...... / $2,850 / F

Because there were no beginning or ending raw materials inventories, the materials purchased were all used in production during the month. Therefore, the price and quantity variances together equal the total variance. If the quantity variance is $650 U, then the price variance must be $3,500 F:

Price variance...... / $3,500 / F
Quantity variance...... / 650 / U
Total variance...... / $2,850 / F

Alternative Solution:

Actual Quantity of Input, at Actual
Price / Actual Quantity of Input, at Standard Price / Standard Quantity Allowed for Actual Output, at Standard Price
(AQ × AP) / (AQ × SP) / (SQ × SP)
2,800 yards
× $5.25 per yard / 2,800 yards
× $6.50 per yard* / 2,700 yards**
× $6.50 per yard*
= $14,700* / = $18,200 / = $17,550*
 /  / 
Price Variance,
$3,500 F / Quantity Variance,
$650 U*
Total Variance, $2,850 F
*Given.
**1,000 units × 2.70 yards per unit = 2,700 yards

5.The first step in computing the standard direct labor rate is to determine the standard direct labor-hours allowed for the month’s production. The standard direct labor-hours can be computed by working with the variable manufacturing overhead cost figures, since they are based on direct labor-hours worked:

Standard variable manufacturing overhead cost for September (a). / $4,200
Standard variable manufacturing overhead rate per direct labor-hour (b) / $2.80
Standard direct labor-hours for September (a) ÷ (b)...... / 1,500

6.Before the labor variances can be computed, it is first necessary to compute the actual direct labor cost for the month:

Actual cost per backpack produced (part 2)...... / $31.60
Number of backpacks produced...... / ×1,000
Total actual cost of production...... / $31,600
Less: Actual cost of materials...... / $14,700
Actual cost of variable manufacturing overhead.... / 3,500 / 18,200
Actual cost of direct labor...... / $13,400

With this information, the variances can be computed:

Actual Hours of Input, at the Actual Rate / Actual Hours of Input, at the Standard
Rate / Standard Hours Allowed for Actual Output, at the Standard Rate
(AH × AR) / (AH × SR) / (SH × SR)
$13,400 / 1,600 hours*
× $8.00 per hour / $12,000*
= $12,800
 /  / 
Rate Variance,
$600 U / Efficiency Variance,
$800 U
Total Variance, $1,400 U

*Given.

7. / Actual Hours of Input, at the Actual Rate / Actual Hours of Input, at the Standard
Rate / Standard Hours Allowed for Actual Output, at the Standard Rate
(AH × AR) / (AH × SR) / (SH × SR)
$3,500* / 1,600 hours*
× $2.80 per hour* / $4,200*
= $4,480
 /  / 
Spending Variance,
$980 F / Efficiency Variance,
$280 U
Total Variance, $700 F

*Given.

8.

Standard Quantity or Hours per Backpack / Standard
Price or
Rate /
Standard
Cost per Backpack
Direct materials...... / 2.70 yards1 / $6.50 per yard / $17.55
Direct labor...... / 1.50 hours2 / $8.00 per hour3 / 12.00
Variable manufacturing overhead / 1.50 hours / $2.80 per hour / 4.20
Total standard cost per backpack / $33.75
1From part 3.
21,500 standard hours (from part 5) ÷ 1,000 backpacks
= 1.50 hours per backpack.
3From part 5.