A Case Study - A CASE STUDY , ,directlabor,.The

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A CASE STUDY To establish the standard cost of producing a product, it is necessary to establish standards for each  manufacturing cost element—direct materials, direct labor, and manufacturing overhead . The  standard for each element is derived from the standard price to be paid and the standard quantity to  be used. To illustrate, we look at a case study of how standard costs are set. In this extended example, we  assume that Xonic, Inc. wishes to use standard costs to measure performance in filling an order for  1,000 gallons of Weed-O, a liquid weed killer. Direct Materials The  direct materials price standard  is the cost per unit of direct materials that should be incurred.  This standard should be based on the purchasing department's best estimate of the  cost of raw  materials . This cost is frequently based on current purchase prices. The price standard also includes  an amount for related costs such as receiving, storing, and handling. The materials price standard per  pound of material for Xonic's weed killer is:  Illustration 22-2    Setting direct materials price standard The  direct materials quantity standard  is the quantity of direct materials that should be used per  unit of finished goods
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 202 taught by Professor - during the Fall '11 term at Montgomery.

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A Case Study - A CASE STUDY , ,directlabor,.The

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