Actual Standard Cost Standard Variance Cost per Ton Cost Direct labor € 38,100 €0.544 € 36,992 €1,108 U Sugar beets 64,829 0.953 64,804 25 U Variable overhead 28,211 0.400 27,200 1,011 U Fixed overhead 45,227 0.696 47,328 2,101 F Total €176,367 €2.593 €176,324 € 43 U Senior management was not surprised at the small variances for labor and sugar beets. The processing plant has good operating controls and there had been no surprises in the sugar beet market or in the labor market. Its initial forecasts proved to be good. Management was delighted to see the favorable total overhead variance (€1,090F €1,011A + €2,101F). Although variable overhead was over budget, fixed overhead was below budget and more than offset the over-budget variable overhead. No major change had taken place in the plant's production technology to explain this shift (such as increased automation). Therefore, senior management was prepared to attribute the favorable total overhead variance to better internal control by the plant manager. a. What do b. Is it appropriate to base next vear's standards on last vear's costs? you think is the reason for the overhead variances?
Actual Standard Cost Standard Variance Cost per Ton Cost Direct labor € 38,100 €0.544 € 36,992 €1,108 U Sugar beets 64,829 0.953 64,804 25 U Variable overhead 28,211 0.400 27,200 1,011 U Fixed overhead 45,227 0.696 47,328 2,101 F Total €176,367 €2.593 €176,324 € 43 U Senior management was not surprised at the small variances for labor and sugar beets. The processing plant has good operating controls and there had been no surprises in the sugar beet market or in the labor market. Its initial forecasts proved to be good. Management was delighted to see the favorable total overhead variance (€1,090F €1,011A + €2,101F). Although variable overhead was over budget, fixed overhead was below budget and more than offset the over-budget variable overhead. No major change had taken place in the plant's production technology to explain this shift (such as increased automation). Therefore, senior management was prepared to attribute the favorable total overhead variance to better internal control by the plant manager. a. What do b. Is it appropriate to base next vear's standards on last vear's costs? you think is the reason for the overhead variances?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Transcribed Image Text:Actual Standard Cost
Standard
Variance
Cost
per Ton
Cost
Direct labor
€ 38,100
€0.544
€ 36,992
€1,108 U
Sugar beets
64,829
0.953
64,804
25 U
Variable overhead
28,211
0.400
27,200
1,011U
Fixed overhead
45,227
0.696
47,328
2,101 F
Total
€176,367
€2.593
€176,324
€ 43 U
Senior management was not surprised at the small variances for labor and sugar beets.
The processing plant has good operating controls and there had been no surprises in the
sugar beet market or in the labor market. Its initial forecasts proved to be good.
Management was delighted to see the favorable total overhead variance (€1,090F =
€1,011A + €2,101F). Although variable overhead was over budget, fixed overhead was
below budget and more than offset the over-budget variable overhead. No major
change had taken place in the plant's production technology to explain this shift (such
as increased automation). Therefore, senior management was prepared to attribute the
favorable total overhead variance to better internal control by the plant manager.
a. What do you think is the reason for the overhead variances?
b. Is it appropriate to base next year's standards on last year's costs?
Transcribed Image Text:AIP 11.5 Overhead Variances LO 2, 6, Appendix
Europa Sugar processes sugar beets into granulated sugar that is sold to food
companies. It uses a standard cost system to aid in the control of costs and for
performance evaluation. To compute the standards for next year, the actual expense
incurred by expense category is divided by the number of tons of sugar beets processed
to arrive at a standard cost per ton. These per-ton standards then are increased by the
expected amount of inflation forecast for that expense category. This year, Europa
Sugar processed 6.3 million tons of beets. The calculation of next year's standard costs
is as follows:
Europa Sugar
Standard Costs for Next Year
(thousands of euros)
Cost per
Ton
This Year's
Inflation Standard Cost
Cost
Adjusment
per Ton
Direct labor
€ 33,000
€0.524
4.0%
€0.544
Sugar beets
58,000
0.921
3.5
0.953
Variable overhead
24,000
0.381
5.0
0.400
Fixed overhead
43,000
0.683
2.0
0.696
Total
€158,000
€2.509
€2.593
Next year, actual production is 6.8 million tons. At the end of next year, the following
report is prepared:
Europa Sugar
Actual Results compared to Standard
Next Year
(thousands of euros)
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