Question

Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows:
Cost Category Standard Cost per 100 Two-Liter Bottles
Direct labor $ 2.00
Direct materials 9.10
Factory overhead 0.55
Total $11.65 B.
At the beginning of July, GBC management planned to produce 400,000 bottles. The actual number of bottles produced for July was 406,000 bottles. The actual costs for July of the current year were as follows:
Cost Category Actual Cost for the Month Ended July 31
Direct labor $ 7,540
Direct materials 35,750
Factory overhead 2,680
Total $45,970
Required:
A. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for GBC, assuming planned production.
B. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July.
C. Interpret the budget performance report.

Answer 1

Answer:

See below.

Explanation:

Since the costs are per 100, to calculate total standard we multiply by 400,000/100 = 4000 and actual qty then is 4060.

For A, standard cost budget at standard prices.

Direct Labor            (2*4000)          = $8,000

Direct Material     (9.1*4000)        = $36,400

Factory Overhead  (0.55*4000)    = $2,200

Total                                                        = $46,600

For B, The total cost variances are as follows,

Material cost variance = (Standard Price - Actual Price) * Actual Quantity  

where, Standard price = 9.1 and Actual price = (35750/4060) = $8.81

Variance = (9.1 - 8.81) * 4060  = $1177.4 Favorable

Direct labor cost variance = (Standard rate - Actual Rate) * Actual Quantity

where, Standard rate = 2 and Actual rate = (7540/4060) = $1.86

Variance = (2-1.86) * 4060  = $568.4 Favorable

Factory Overhead variance

= Standard applied - Actual applied  

Variance = (0.55*4060) - 2680     = $447 Unfavorable

Net effect on total cost variances = (1177.4+568.4-447) = $1298.8 Favorable

For c)

The over all cost performance has favored the business as they ere able to lessen costs in direct labor and material department. However, the fixed costs performance has deteriorated and there may be some technical issues that the company can deal with to ensure they perform better on fixed costs. The over all performance is favorable.