Standard Cost
per 100 Two-liter
Cost Category Bottles
Direct labor $ 1.80
Direct materials 8.25
Factory overhead 0.50
Total $10.55
At the beginning of May, TBC management planned to produce 600,000 bottles. The
actual number of bottles produced for May was 610,000 bottles. The actual costs for May of the current year were as follows:
Actual Cost for the
Cost Category month ended may 31, 2014
Direct labor $ 9,890
Direct materials 48,450
Factory overhead 3,460
Total $61,800
a. Prepare the May manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for TBC, assuming planned production.
b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for May.
c. Interpret the budget performance report.
Answer:
a. TIME IN A BOTTLE COMPANY
Manufacturing Cost Budget
For the Month Ended May 31, 2014
Standard Cost at
Manufacturing costs:
Direct labor $10,800
Direct materials 49,500
Factory overhead 3,000
Total $63,300
$1.80 × (600,000 ÷ 100) = $10,800
$8.25 × (600,000 ÷ 100) = $49,500
$0.50 × (600,000 ÷ 100) = $3,000
Note: The cost standards are expressed as “per 100 bottles.”
b. TIME IN A BOTTLE COMPANY
Manufacturing Costs—Budget Performance Report
For the Month Ended May 31, 2014
Actual
Costs
Standard Cost at
Actual Volume
(610,000 Bottles)
Manufacturing costs:
Direct labor $ 9,890 $10,980 $(1,090)
Direct materials 48,450 50,325 (1,875)
Factory overhead 3,460 3,050 410
Total manufacturing cost $61,800 $64,355 $(2,555)
$1.80 × (610,000 ÷ 100) = $10,980
$8.25 × (610,000 ÷ 100) = $50,325
$0.50 × (610,000 ÷ 100) = $3,050
c. Time in a Bottle Company’s actual costs were $2,555 less than budgeted. Favorable
direct labor and direct material cost variances more than offset a small
unfavorable factory overhead cost variance.
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