Answered: ABC, Inc. uses standard costing for its…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter8: Standard Costs And Variances

Section: Chapter Questions

Problem 4PA: April Industries employs a standard costing system in the manufacturing of its sole product, a park...

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ABC, Inc. uses standard costing for its one product, baseball bats. The standards call for 3 board-feet of wood at P1.40 per board-foot, and 45 minutes of work at P12 per hour per bat. Total manufacturing overhead costs were estimated at P5,250, of which the variable portion was P0.50 per bat and the fixed portion was P0.75 per bat with an estimate of 4,200 bats to be produced. Spaulding identifies price variances at the earliest possible point in time.

During March, the company had the following results:

Direct labor used = 3,200 hours at a cost of P37,760

Actual manufacturing overhead fixed costs = P3,000

Actual manufacturing overhead variable costs = P2,050

Bats produced = 4,000

True or False:
Statement 1: The Labor Quantity Variance is P2,400 U
Statement 2: The Total Labor Variance is P1,750 U

A.False, False

B.False, True

C.True, True

D.True, False

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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