Answered: Standard absorption cost per unit DMA,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Standard absorption cost per unit DMA, Inc., processes corn into corn starch and corn syrup. The company’s productivity and cost standards follow:
From every bushel of corn processed, 12 pounds of starch and 6 pounds of syrup should be produced. Standard direct labor and variable overhead total $0.86 per bushel of corn processed. Standard fixed overhead (the predetermined fixed overhead application rate) is $0.66 per bushel processed.
Required:
a. Calculate the standard absorption cost per pound for the starch and syrup produced from the processing of 15,000 bushels of corn if the average cost per bushel is $5.68.
b. Comment about the usefulness of this standard cost for management planning and control purposes

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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