Chapter 11, Problem 11.56BP

Comprehensive standards and variances problem (Learning Objectives 1, 2, 3, 4, 5, & 6)

Dolson Manufacturing produces ceramic teapots. Dolson allocates overhead based on the number of direct labor hours. The company is looking into using a standard cost system and has developed the following standards (one “unit” is a batch of 100 teapots).

Standards:

Direct material 70 pounds per batch at $4.00 per pound

Direct labor 3.0 hours per batch at $19.00 per hour

Variable MOH standard rate $3.00 per direct labor hour

Predetermined fixed MOH standard rate $6.00 per direct labor hour

Total budgeted fixed MOH cost $1,560

Actual cost and operating data from the most recent month follows:

Purchased 5,670 pounds at a cost of $3.90 per pound

Used 5,000 pounds in producing 70 batches

Actual direct labor cost of $4,554 at an average direct labor cost per hour of $19.80

Actual variable MOH cost $736

Actual fixed MOH cost $1,660

All manufacturing overhead is allocated on the basis of direct labor hours.

Requirements

1. 1. Calculate the standard cost of one batch.
2. 2. Calculate the following variances:
   1. a. The direct material variances.
   2. b. The direct labor variances.
   3. c. The variable manufacturing overhead variances.
   4. d. The fixed manufacturing overhead variances.
3. 3. Have the company’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why or why not?
4. 4. Describe how the company’s managers can benefit from the standard costing system. Do you think the company should continue with the standard cost system?