Salisbury Bottle Company manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows: Cost Category Standard Cost per 100 Two-Liter Bottles Direct labor $1.20 Direct materials 6.50 Factory overhead 1.80 Total $9.50 At the beginning of March, Salisbury’s management planned to produce 500,000 bottles. The actual number of bottles produced for March was 525,000 bottles. The actual costs for March of the current year were as follows: Cost Category Actual Cost for the Month Ended March 31 Direct labor $6,550 Direct materials 33,800 Factory overhead 9,100 Total $49,450 a. Prepare the March manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for Salisbury, assuming planned production. Salisbury Bottle Company Manufacturing Cost Budget For the Month Ended March 31 Standard Cost at Planned Volume (500,000 Bottles) Manufacturing costs: Direct labor Direct materials Factory overhead Total b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for March. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Salisbury Bottle Company Manufacturing Costs-Budget Performance Report For the Month Ended March 31 Actual Costs Standard Cost at Actual Volume (525,000 Bottles) Cost Variance- (Favorable) Unfavorable Manufacturing costs: Direct labor Direct materials Factory overhead Total manufacturing cost c. The Company's actual costs were $425 less than budgeted. Favorable direct materials and factory overhead cost variances more than offset a small unfavorable direct labor cost variance.
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.
Salisbury Bottle Company manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows:
| Cost Category | per 100 Two-Liter Bottles |
|||||
| Direct labor | $1.20 | |||||
| Direct materials | 6.50 | |||||
| Factory |
1.80 | |||||
| Total | $9.50 |
At the beginning of March, Salisbury’s management planned to produce 500,000 bottles. The actual number of bottles produced for March was 525,000 bottles. The actual costs for March of the current year were as follows:
| Cost Category | Actual Cost for the Month Ended March 31 |
|||||||||
| Direct labor | $6,550 | |||||||||
| Direct materials | 33,800 | |||||||||
| Factory overhead | 9,100 | |||||||||
| Total | $49,450 |
a. Prepare the March manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for Salisbury, assuming planned production.
| Salisbury Bottle Company | |
| Manufacturing Cost Budget | |
| For the Month Ended March 31 | |
| Standard Cost at Planned Volume (500,000 Bottles) |
|
| Manufacturing costs: | |
| Direct labor | |
| Direct materials | |
| Factory overhead | |
| Total |
b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for March. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
| Salisbury Bottle Company | |||
| Manufacturing Costs-Budget Performance Report | |||
| For the Month Ended March 31 | |||
| Actual Costs |
Standard Cost at Actual Volume (525,000 Bottles) |
Cost Variance- (Favorable) Unfavorable |
|
| Manufacturing costs: | |||
| Direct labor | |||
| Direct materials | |||
| Factory overhead | |||
| Total manufacturing cost |
c. The Company's actual costs were $425 less than budgeted. Favorable direct materials and
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
