synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,921. It also incurred average direct labor costs of $15 per hour for the 3,814 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $
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.
Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,921. It also incurred average direct labor costs of $15 per hour for the 3,814 hours worked in May by its production personnel. Manufacturing
| Direct materials standard price | $ | 1.30 | per gallon |
| Standard quantity allowed per case | 3.25 | gallons | |
| Direct labor standard rate | $ | 16 | per hour |
| Standard hours allowed per case | 0.75 | direct labor hours | |
| Fixed overhead budgeted | $ | 2,600 | per month |
| Normal level of production | 5,200 | cases per month | |
| Variable overhead application rate | $ | 1.50 | per case |
| Fixed overhead application rate ($2,600 ÷ 5,200 cases) | 0.50 | per case | |
| Total overhead application rate | $ | 2.00 | per case |
Required:
a. Compute the materials price and quantity variances.
b. Compute the labor rate and efficiency variances.
c. Compute the manufacturing overhead spending and volume variances.
d. Prepare the
1. Charge materials (at standard) to Work in Process.
2. Charge direct labor (at standard) to Work in Process.
3. Charge manufacturing overhead (at standard) to Work in Process.
4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.
5. Close any over- or underapplied overhead to cost of goods sold.
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