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Sample ProblemSample ProblemSample ProblemSample Problem
Problem 31.3AProblem 31.3A
Memphis Chemical Company manufactures a product called Tectate, which requires three raw materials. Production is in batches of 1,050 gallons of raw materials that yield only 1,000 gallons of finished product. (Some evaporation of the base occurs, but the amount of
evaporation varies slightly from batch to batch.) The firm uses standard costs as a control device. Its standard costs for materials for each batch of Tectate have been established as follows.
The output is packaged in 50-gallon drums. During the month of May 2007, 300 drums of Tectate were produced. There was no
beginning or ending inventory of work in process. The materials actually used during May are listed below.
MEMPHIS CHEMICAL COMPANYAnalysis of Materials Variance
Month of May 2007
Cost VarianceCost elements Standard Actual Quantity PriceInert base standard: 12,[email protected] 3060.00 actual: 12,[email protected] 3210.00 quantity variance: [email protected] -21.60 price variance: 12,[email protected] -128.40Acid standard: 2,[email protected] 3720.00 actual: 2,[email protected] 3824.00 quantity variance: [email protected] 15.50 price variance: 2,[email protected] -119.50Activator standard: [email protected] 7800.00 actual: [email protected] 7650.00 quantity variance: 12 [email protected] -156.00 price variance: [email protected] 306.00Totals 14580.00 14684.00 -162.10 58.10
Total standard and actual costs and variances for each type of material
Standard ActualVariance
Inert base 3,060 3,210 -150Acid 3,720 3,824 -104Activator 7,800 7,650 150Totals 14,580 14,684 -104
Computation of Standard Quantities
Inert base: 300 x 50gal/1,000gal = 15 batches: 15 x 850 = 12,750Acid: 15 batches x 160 = 2,400Activator: 15 batches x 40 = 600
Analyze: only the activator was obtained at lower than standard cost