Chapter 11, Problem 11.51AP

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

Seacrest Manufacturing produces ceramic teapots. Seacrest 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 30 pounds per batch at $3.00 per pound

Direct labor 2.0 hours per batch at $12.00 per hour

Variable MOH standard rate $2.00 per direct labor hour

Predetermined fixed MOH standard rate $7.00 per direct labor hour

Total budgeted fixed MOH cost $1,670

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

Purchased 3.040 pounds at a cost of $2.90 per pound

Used 3.000 pounds in producing 80 batches

Actual direct labor cost of $2,142 at an average direct labor cost per hour of $12.60

Actual variable MOH $442

Actual fixed MOH $2,270

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.
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?