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As part of its cost control program, Tracer Company uses a standard costing system for all manufactured items. The standard cost for each item is established at the beginning of the fiscal year, and the standards are not revised until the beginning of the next fiscal year. Changes in costs, caused during the year by changes in direct materials or direct labor inputs or by changes in the manufacturing process, are recognized as they occur by the inclusion of planned variances in Tracer’s monthly operating budgets.
The following direct labor standard was established for one of Tracer’s products, effective June 1, 2012, the beginning of the fiscal year:
The standard was based on the direct labor being performed by a team consisting of five persons with Assembler A skills, three persons with Assembler B skills, and two persons with machinist skills; this team represents the most efficient use of the company’s skilled employees. The standard also assumed that the quality of direct materials that had been used in prior years would be available for the coming year.
For the first seven months of the fiscal year, actual
Furthermore, Tracer has been notified by its direct materials supplier that lower-quality direct materials will be supplied beginning January 1. Normally, one unit of direct materials is required for each good unit produced, and no units are lost due to defective direct materials. Tracer estimates that 6 percent of the units manufactured after January 1 will be rejected in the final inspection process due to defective direct materials.
Required:
- 1. Determine the number of units of lower quality direct materials that Tracer Company must enter into production in order to produce 47,000 good finished units.
- 2. How many hours of each class of direct labor must be used to manufacture 47,000 good finished units?
- 3. Determine the amount that should be included in Tracer’s January operating budget for the planned direct labor variance caused by the reorganization of the direct labor teams and the lower quality direct materials. (CMA adapted)
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Chapter 9 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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