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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Standard product cost

 Sana Rosa Furniture Company manufactures designer home furniture. Sana Rosa uses a standard cost system. The direct labor, direct materials, and factory overhead standards for an unfinished dining room table are as follows:

Direct labor: standard rate $ 18.00 per hr.
  standard time per unit 3.5 hrs.
Direct materials (oak): standard price $ 15.00 per bd. ft.
  standard quantity 26 bd. ft
Variable factory overhead: standard rate $4.20 per direct labor hr.
Fixed factory overhead: standard rate $1.80 per direct labor hr.

 a.    Determine the standard cost per dining room table.

 b.    Why would Sana Rosa Furniture Company use a standard cost system?

(a)

To determine

Standard cost:

In the accounting records, the term standard cost refers to the practice of replacement of an expected cost for an actual cost. Then the difference between the expected costs and actual costs showing the variance are also recorded periodically. A standard costs is also known as target cost or predetermined cost.

Standard cost system:

Standard cost system to the accounting systems which use standards for product cost. Standard cost system enable management to determine the following:

  • How much a product should cost (standard costs).
  • How much actually does it cost (actual cost).

To determine: The standard cost per dining room table.

Explanation

The total cost per unit is ($63 + $390 + $14.70 + $6.30) $474.

Working notes:

To determine the direct labor cost:

Direct labor =Standard rate × standard time per unit=$18.00 × 3.5 hrs=$ 63

To determine the direct material cost:

Direct material =Standard price × standard quantity=$15.00 × 26 bd

(b)

To determine

To explain: The reason behind the use of standard cost system by Company S.

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