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Chapter 23: Q5SE (page 1306)

Identifying the benefits of standard costs

Setting standards for a product may involve many employees of the company. Identify some of the employees who may be involved in setting the standard costs, and describe what their role might be in setting those standards.

Short Answer

Expert verified

Employees

Information providing

Human resources manager

Information relating to wage rates.

Production manager

Information relating to resources required.

Purchasing manager

Information relating to the cost.

Production manager and engineer

Information relating to the product and its development.

Step by step solution

01

Definition of Standard Cost

The estimated cost of any activity or product is known as the standard cost. This cost is compared against the actual cost to control the business activities.

02

Step 2:Employees and their roles regarding standards-

The human resources manager provides information regarding wage rates based on experience requirements, payroll taxes, and fringe benefits (for direct labor cost standards).

03

Employees and their roles regarding standards

The production manager provides information about the nature and the amount of resources to support activities, such as moving materials, maintaining equipment, and product inspection (for manufacturing overhead standards).

04

Employees and their roles regarding standards-

Purchasing manager provides information about the purchase costs, discounts, delivery requirements, and credit policies (for direct material cost standard).

05

Step 5:Employees and their roles regarding standards-

The production manager provides information regarding Product specifications, spoilage, and production scheduling (for direct materials efficiency standards), and engineers provide information related to the time requirements for production levels and employee experience needed (for direct labor efficiency standards).

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Most popular questions from this chapter

Preparing a flexible budget and performance report

This continues the Piedmont Computer Company situation from Chapter 22. Assume Piedmont Computer Company has created a standard cost card for the PCC model tablet computer, with overhead allocated based on direct labor hours:

Direct materials

\( 300 per tablet

Direct labor

3 hours per tablet at \)26 per hour

Variable overhead

3 hours per tablet at \(5 per hour

Fixed overhead

\)54,000 per month

During the month of September, Piedmont Computer Company incurred the following costs while manufacturing 1,100 PCC model tablets:

Direct material

\(341,000

Direct labor

88,000

Variable overhead

17,600

Fixed overhead

56,320

Requirements

1. Prepare a flexible budget for September for 900, 1,000, and 1,100 PCC model tablets. The tablet has a standard sales price of \)675. List variable costs separately.

2. Using 1,000 PCC model tablets for the static budget, prepare a flexible budget performance report for September. Total sales revenue for the month was $767,800. The company sold 1,100 tablets.

3. What insights can the management of Piedmont Computer Company draw from the performance report?

Question:This Try It! continues the previous Try It! for Tipton Company, a shirt manufacturer. During June, Tipton made 1,200 shirts but had budgeted production at 1,400 shirts. Tipton gathered the following additional data:

Variable overhead cost standard \(0.50 per DLHr

Direct labor efficiency standard 2.00 DLHr per shirt

Actual amount of direct labor hours 2,520 DLHr

Actual cost of variable overhead \)1,512

Fixed overhead cost standard \(0.25 per DLHr

Budgeted fixed overhead \)700

Actual cost of fixed overhead $750

Calculate the following variances:

13. Variable overhead cost variance

14. Variable overhead efficiency variance

15. Total variable overhead variance

16. Fixed overhead cost variance

17. Fixed overhead volume variance

18. Total fixed overhead variance

Computing standard cost variances and reporting to management

Hear Smart manufactures headphone cases. During September 2018, the company produced and sold 105,000 cases and recorded the following cost data:

Standard Cost Information

Quantity

Cost

Direct Materials

2 parts

\( 0.15 per part

Direct Labor

0.02 hours

8.00 per hour

Variable Manufacturing Overhead

0.02 hours

10.00 per hour

Fixed Manufacturing Overhead (\)28,500 for static budget volume of

95,000 units and 1,900 hours, or \(15 per hour)

Actual Cost Information

Direct Materials (209,000 parts @ \)0.20 per part) \( 41,800

Direct Labor (1,600 hours @ \)8.15 per hour) 13,040

Variable Manufacturing Overhead 9,000

Fixed Manufacturing Overhead 26,000

Requirements

1. Compute the cost and efficiency variances for direct materials and labor.

2. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

3. Hear Smart’s management used better quality materials during September. Discuss the tradeoff between the two direct material variances.

Computing and journalizing standard cost variances

Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 59,800 coffee mugs per month:

Direct material (0.2 lbs. @\(0.25 per lb)

\)0.05

Direct Labor (3 minutes @ \(0.11 per minute)

0.33

Manufacturing Overhead:

Variable (3 minutes @ \)0.06 per minute)

\(0.18

Fixed (3 minutes @ \)0.13 per minute)

0.39

0.57

Total Cost per Coffee Mug

\(0.95

Actual cost and production information for July 2018 follows:

a. There were no beginning or ending inventory balances. All expenditures were on account.

b. Actual production and sales were 62,500 coffee mugs.

c. Actual direct materials usage was 11,000 lbs. at an actual cost of \)0.17 per lb.

d. Actual direct labor usage was 197,000 minutes at a total cost of \(25,610.

e. Actual overhead cost was \)10,835 variable and \(29,765 fixed.

f. Selling and administrative costs were \)95,000.

Requirements

1. Compute the cost and efficiency variances for direct materials and direct labor.

2. Journalize the purchase and usage of direct materials and the assignment of direct labor, including the related variances.

3. For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.

4. Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production costs from Work­-in­-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.

5. Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?

Briefly describe how journal entries differ in a standard cost system.
See all solutions

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