RampUp Storage Containers produces a 1,000-cubic-foot metal storage unit that is used by storage companies and other businesses needing low-cost, mobile storage units. The units sell for $3,000 per unit. The company uses a standard costing system. At the start of 2016, standard costs were set as follows: Standard cost per unit: $1,200 Material cost (6 prefabricated metal sheets × $200) Direct labor (10 hours × $20) Overhead ($500 per unit) 200 500 Total $1,900 The overhead rate was calculated as follows: At the start of 2016, the company estimated that it would produce and sell 5,000 units and incur $500,000 of variable overhead costs and $2,000,000 of fixed overhead costs: Variable overhead Fixed overhead $ 500,000 2,000,000 Total 2,500,000 Divided by estimated production 5,000 500 Overhead cost per unit Based on estimated sales, standard costs, and other information, the following budget was pre- pared: 2016 Budget (Expected Production and Sales of 5,000 Units) Sales $15,000,000 Cost of sales 9,500,000 Gross profit 5,500,000 Selling, general, and administrative expense Income from operations 3,900,000 $1,600,000 During 2016, the company received an unexpected large order (1,000 units) from a national storage company. The result was a substantial increase in the number of units produced and sold (6,000 units in total). Of the 6,000 units, 5,000 were sold at the standard price of $3,000 per unit. The 1,000 units sold to the national storage company were sold at $2,800 per unit. To produce the 6,000 units, the company incurred the following production costs: Material purchased and used (36,200 metal sheets × $200) $ 7,240,000 Direct labor (62,000 hours × $21) 1,302,000 Variable overhead 594,000 Fixed overhead 2,480,000 Total actual production costs $11,616,000 REQUIRED Calculate the production cost variances and indicate whether they are favorable or unfavorable.
RampUp Storage Containers produces a 1,000-cubic-foot metal storage unit that is used by storage companies and other businesses needing low-cost, mobile storage units. The units sell for $3,000 per unit. The company uses a standard costing system. At the start of 2016, standard costs were set as follows: Standard cost per unit: $1,200 Material cost (6 prefabricated metal sheets × $200) Direct labor (10 hours × $20) Overhead ($500 per unit) 200 500 Total $1,900 The overhead rate was calculated as follows: At the start of 2016, the company estimated that it would produce and sell 5,000 units and incur $500,000 of variable overhead costs and $2,000,000 of fixed overhead costs: Variable overhead Fixed overhead $ 500,000 2,000,000 Total 2,500,000 Divided by estimated production 5,000 500 Overhead cost per unit Based on estimated sales, standard costs, and other information, the following budget was pre- pared: 2016 Budget (Expected Production and Sales of 5,000 Units) Sales $15,000,000 Cost of sales 9,500,000 Gross profit 5,500,000 Selling, general, and administrative expense Income from operations 3,900,000 $1,600,000 During 2016, the company received an unexpected large order (1,000 units) from a national storage company. The result was a substantial increase in the number of units produced and sold (6,000 units in total). Of the 6,000 units, 5,000 were sold at the standard price of $3,000 per unit. The 1,000 units sold to the national storage company were sold at $2,800 per unit. To produce the 6,000 units, the company incurred the following production costs: Material purchased and used (36,200 metal sheets × $200) $ 7,240,000 Direct labor (62,000 hours × $21) 1,302,000 Variable overhead 594,000 Fixed overhead 2,480,000 Total actual production costs $11,616,000 REQUIRED Calculate the production cost variances and indicate whether they are favorable or unfavorable.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:RampUp Storage Containers produces a 1,000-cubic-foot metal storage unit that is used by storage
companies and other businesses needing low-cost, mobile storage units. The units sell for $3,000
per unit.
The company uses a standard costing system. At the start of 2016, standard costs were set
as follows:
Standard cost per unit:
$1,200
Material cost (6 prefabricated metal sheets × $200)
Direct labor (10 hours × $20)
200
Overhead ($500 per unit)
500
Total
$1,900
The overhead rate was calculated as follows: At the start of 2016, the company estimated that it
would produce and sell 5,000 units and incur $500,000 of variable overhead costs and $2,000,000
of fixed overhead costs:
Variable overhead
Fixed overhead
$ 500,000
2,000,000
2,500,000
5,000
Total
Divided by estimated production
Overhead cost per unit
$
500
Based on estimated sales, standard costs, and other information, the following budget was pre-
pared:
2016 Budget (Expected Production and Sales of 5,000 Units)
Sales
$15,000,000
Cost of sales
9,500,000
Gross profit
5,500,000
Selling, general, and administrative expense
Income from operations
3,900,000
$1,600,000
During 2016, the company received an unexpected large order (1,000 units) from a national storage
company. The result was a substantial increase in the number of units produced and sold (6,000
units in total). Of the 6,000 units, 5,000 were sold at the standard price of $3,000 per unit. The
1,000 units sold to the national storage company were sold at $2,800 per unit.
To produce the 6,000 units, the company incurred the following production costs:
Material purchased and used
$ 7,240,000
(36,200 metal sheets × $200)
Direct labor
(62,000 hours × $21)
1,302,000
Variable overhead
594,000
Fixed overhead
2,480,000
Total actual production costs
$11,616,000
REQUIRED
Calculate the production cost variances and indicate whether they are favorable or unfavorable.
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