Calculating Standard Quantities for Actual ProductionGuillermo’s Oil and Lube Company is a service company that offers oil changes and lubricationfor automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 24 minutes and 6.2 quarts of oil are used. In June, Guillermo’s Oil and Lube had 980 oilchanges. Required:1. Calculate the number of quarts of oil that should have been used (SQ) for 980 oil changes.2. Calculate the hours of direct labor that should have been used (SH) for 980 oil changes.3. What if there had been 970 oil changes in June? Would the standard quantities of oil (in quarts) and of direct labor hours be higher or lower than the amounts calculated in Require-ments 1 and 2? What would the new standard quantities be?
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.
Calculating Standard Quantities for Actual Production
Guillermo’s Oil and Lube Company is a service company that offers oil changes and lubrication
for automobiles and light trucks. On average, Guillermo has found that a typical oil change takes 24 minutes and 6.2 quarts of oil are used. In June, Guillermo’s Oil and Lube had 980 oil
changes.
Required:
1. Calculate the number of quarts of oil that should have been used (SQ) for 980 oil changes.
2. Calculate the hours of direct labor that should have been used (SH) for 980 oil changes.
3. What if there had been 970 oil changes in June? Would the standard quantities of oil (in quarts) and of direct labor hours be higher or lower than the amounts calculated in Require-
ments 1 and 2? What would the new standard quantities be?
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