The Groves Company makes coffee cups from fine china. The company prepares flexible budgets and uses standard (budgeted) cost system to control manufacturing costs. The standard unit cost of a coffee cup is based on a static budgeted volume of 59,800 cups per month. Direct materials (0.2 lbs. @ $0.25 per lb. $0.05 Direct labor (3 minutes @ $0.14 per minute 0.42 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 cup $1.04 Required:
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
The Groves Company makes coffee cups from fine china. The company prepares flexible budgets and uses standard (budgeted) cost system to control
Direct materials (0.2 lbs. @ $0.25 per lb. $0.05
Direct labor (3 minutes @ $0.14 per minute 0.42
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 cup $1.04
Required:
1.Use the information above and the format followed in class, to prepare budgets for the following amounts: 59,800, 65,000 and 75,000 china cups.
- Suppose that :
- actual production ad sales were 62, 500 cups
- actual direct labor usage was 11,000 pounds at an actual cost of $0.17 per lb.
- actual direct labor usage was 197,000 minutes at a cost of $33,490.
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