Issue: Toddler Treasures’ Chief Financial Officer, David Reed, has decided to adopt a standard costing system. The company needs to determine price and quantity variations from the materials used and purchased to detect any unusual deviations from its benchmarks.
Recommendation: Standard costing is a great tool for this company and they must continue to use it. It will aid in helping management analyze actual costs versus standard costs. The variances that can be calculated will help them make future decisions in regard to cost cutting and also many other things such as what quality materials to use in production.
Direct materials per unit = 110,000 square yards/20,000 blankets produced
= 5.5 square yards
Direct labor per unit = 9,000 hours/20,000 blankets
= .45 hours
MOH per unit = $330,000/20,000 blankets
MOH per DLH = ($330,000-$170,000)/9,000 hours
Direct Material per Unit
Direct Labor Hours per Unit
Manufacturing OH per Unit
Manufacturing OH per DLH
Standard Quantity = 6 x 20,000 = 120,000 units
Standard Quantity = 20,000 x .50 = 10,000 hours
Adopting a standard costing system helps identify performance standards and also helps a company’s managers in preparing budgets and setting performance target levels. In this case, the company needed to find out if the new material it was using was providing any benefits. These favorable variances indicate that the quality of this new material did not have any detrimental effects on production...
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