Chapter 13, Problem 13.19E

To determine

(a)

Concept Introduction:

Standard cost is an accounting system which is used by manufacturers to know the difference between actual cost and standard cost of product.

To Prepare:

The manufacturing standard cost budget forMay for McAlister's Bottle company.

Answer to Problem 13.19E

The standard cost budget for May manufacturing is provided in detail which gives a total budgeted cost of $\$34,400$.

Explanation of Solution

Standard cost budget for May manufacturing is given below:

McAlister's Bottle Company
Standard cost budget
For the months ending in May   $31,2012$
Cost category	Standard cost per   $100$ two-Liter bottle (A)	Budgeted Production (B)	Total Budgeted Cost(AxB)/   $100$
Direct Labor	$\$2.75$	$800,000$	$\$22,000$
Direct Material	$\$1.20$	$800,000$	$\$9,600$
Factory Overhead	$\$0.35$	$800,000$	$\$2,800$
Total			$\$34,400$

To determine

(b)

Concept Introduction:

Standard cost is an accounting system which is used by manufacturers to know the difference between actual cost and standard cost of product.

To Prepare:

A Budget performance report for manufacturing costs, showing total cost variances for direct materials, direct labour and factory overhead for may.

Answer to Problem 13.19E

A budget performance report for manufacturing costs, showing total cost variances for direct materials, direct labour and factory overhead for may is provided in detail.

Explanation of Solution

Comparison of flexible budget with actual expenditure is as follows:

McAlister's Bottle Company
Standard cost budget
For the months ending in May   $31,2012$
Cost category	Actual cost	Standard cost at actual volume (   $750,000$ Bottles) (Note 1)	Cost Variance(Favorable)/ Unfavorable
Direct Labor	$\$21,100$	$\$20,625$	$\$475$
Direct Material	$\$9,200$	$\$9,000$	$\$200$
Factory Overhead	$\$2,700$	$\$2,625$	$\$75$
Total	$\$33,000$	$\$32,250$	$\$750$

Note 1 − Computation of standard cost at actual production:

Direct Labor: $\$2.75\times 750,000÷100=\$20,625$

Direct Material: $\$1.20\times 750,000÷100=\$9,000$

Factory overhead: $\$0.35\times 750,000÷100=\$2,625$

To determine

(c)

Concept Introduction:

Standard cost is an accounting system which is used by manufacturers to know the difference between actual cost and standard cost of product.

Interpret the budget performance report.

Answer to Problem 13.19E

A detailed budget performance report analsis is provided and discussed.

Explanation of Solution

At the actual volume the actual cost is more than standard cost for all the three components. The cost is over budget because variance is unfavorable. So, to reduce unfavorable variance management has to take corrective actions.

To control direct labor cost skill workers should be appointed for the manufacturing process and proper training should be given to reduce the direct labor cost. The working environment should be good to reduce the turnover cost.

To control direct material cost, management should ensure the quality of the material and ration of input and output should be proper and waste should not be more than tolerance level.

To control factory overhead method used by management should be as per plan.