Problem 66 - Wacko, Inc. produces one product called Whimsy. The company uses a
ID: 2451671 • Letter: P
Question
Problem 66 - Wacko, Inc. produces one product called Whimsy. The company uses a standard cost system and sells each whimsy for $8. At the start of monthly production, the company estimated 3,000 whimsies would be produced in March with total overhead per month estimated at $22,050,of which variable overhead is $18,000. Overhead is applied based on units produced. Wacko has established the following material and labor standards to produce one whimsy:
Standard Quantity
Standard Price
Direct materials
Direct labor
2.4 pounds
36 minutes
$2.90 per pound
$10 per hour
During March 2015, the following activity was recorded by the company relating to production:
1. The company produced 3,100 whimseys during the month.
2. A total of 8,000 pounds of material were purchased at a cost of $22,000.
3. A total of 8,400 pounds of material were used in production.
4. Actual overhead incurred was $21,700, of which fixed is $3,800.
5. 1,600 hours of labor were incurred during the month at a total wage cost of $17,600.
A. Calculate the standard cost of whimsies.
B. If the flexible budget is based on 2,500, how much would the standard cost of whimsey's be?
C. How does standard costing differ from normal costing? from actual costing? Be specific as to what differs.
Standard Quantity
Standard Price
Direct materials
Direct labor
2.4 pounds
36 minutes
$2.90 per pound
$10 per hour
Explanation / Answer
Standard Budgeted cost for 3000 whimsies Particulars Calculation Cost per unit Calculation Total cost Direct material 2.9*2.4 $ 6.96 3000*6.96 $ 20,880.00 Direct Labour 10*36/60 $ 6.00 3000*6 $ 18,000.00 Overhead cost Variable cost 18000/3000 $ 6.00 3000*6 $ 18,000.00 Fixed cost (22050-18000) $ 4,050.00 Total Standard cost of production $ 60,930.00 Standard production cost per unit $ 20.31 Note Variable cost per unit is $ 6 (18000/3000) and variable cost per unit will not change. Fixed cost is the difference between the total overhead cost given in the question at 3000 units and the total variable cost. And the total fixed cost will be same irrespective of the production level. Standard Budgeted cost for 2500 whimsies Particulars Calculation Cost per unit Calculation Total cost Direct material 2.9*2.4 $ 6.96 2500*6.96 $ 17,400.00 Direct Labour 10*36/60 $ 6.00 2500*6 $ 15,000.00 Overhead cost Variable cost $ 6.00 2500*6 $ 15,000.00 Fixed cost $ 4,050.00 Total Standard cost of production $ 51,450.00 Standard production cost per unit $ 20.58 Standard Budgeted cost at 3100 whimsies Particulars Calculation Cost per unit Calculation Total cost Direct material 2.9*2.4 $ 6.96 3100*6.96 $ 21,576.00 Direct Labour 10*36/60 $ 6.00 3100*6 $ 18,600.00 Overhead cost Variable cost $ 6.00 3100*6 $ 18,600.00 Fixed cost $ 4,050.00 Total Standard cost of production $ 62,826.00 Standard production cost per unit $ 20.27 Actual cost at 3100 whimsies Particulars Calculation Cost per unit Calculation Total cost Direct material 23100/3100 7.451612903 3100*7.45161 $ 23,100.00 Direct Labour 17600/3100 5.677419355 3100*5.67741 $ 17,600.00 Overhead cost Variable cost 17900/3100 5.774193548 3100*5.77 $ 17,900.00 Fixed cost $ 3,800.00 Total Standard cost of production $ 62,400.00 Standard production cost per unit $ 20.13 Difference between standard cost and actual cost Particulars Standard cost Actual cost Variance Direct material $ 21,576 $ 23,100 $1524 U Direct Labour $ 18,600 $ 17,600 $1000 F Overhead cost Variable cost $ 18,600 $ 17,900 $700 F Fixed cost $ 4,050 $ 3,800 $250 F Total Standard cost of production $ 62,826 $ 62,400 $426 F Note The total variable cost will change between standard costing and the actual costing. The total fixed cost will not change between standard costing and the actual costing.