Arlon Co. manufactures three types of cookies. Fluffs, Crinkles, and Snaps. The production process is relatively simple, and factory overhead costs are allocated to products using a single plant-wide factory rate based on direct labor hours. Information for the month of May 2008, Arlon's first month of operations, follows:
Budgeted Direct Labor
Unit Volume Hours per unit
Fluffs 80,000 boxes 0.10
Crinkles 60,000 boxes 0.20
Snaps 20,000 boxes 1.00
Arlon has budgeted direct labor costs for May at $4.50 per hour. Budgeted direct materials costs for May are: Fluffs, $0.85/unit: Crinkles $0.40/unit; and Snaps $0.30/unit.
Arlon's budgeted overhead costs for May are:
Indirect labor $280,000
Assume that Arlon sells all the boxes it produces in May.
a) compute Arlon's plant-wide factory overhead rate for May.
b) compute May's product cost for each type of cookie.
c) does Arlon's use of a plant-wide factory overhead rate in any way distort May's product costs?
Prepare a flexible budget for Dandy Jeans Company using production levels of 16,000, 18,000, and 20,000 units produced. The following is additional information necessary to complete the budget:
Direct Labor ($6.00 per unit)
Direct Materials ($8.00 per unit)
Variable Manufacturing Costs ($2.50 per unit)
Supervisor's Salaries $80,000
Depreciation on Equipment $24,000
Standard and actual cost for direct materials for the manufacture of 1,000 units of product were as follows:
Actual costs 1,550 lbs. @ $9.10
Standard costs 1,600 lbs. @ $9.00
Determine the following:
a) quantity variance
b) price variance
c) direct materials cost variance
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