# Question: Amber Manufacturing produces ceramic teapots Amber allocates overhead based on

Amber Manufacturing produces ceramic teapots. Amber allocates overhead based on the number of direct labor hours. The company is looking into using a standard cost system and has developed the following standards (one “unit” is a batch of 100 teapots):

Standards:
Direct material 60 pounds per batch at \$ 5.00 per pound
Direct labor 3.0 hours per batch at \$ 17.00 per hour
Variable MOH standard rate \$ 7.00 per direct labor hour
Predetermined fixed MOH standard rate \$ 3.00 per direct labor hour
Total budgeted fixed MOH cost \$ 1,090

Actual cost and operating data from the most recent month are as follows:
Purchased 4,500 pounds at a cost of \$ 4.70 per pound Used 4,100 pounds in producing 60 batches Actual direct labor cost of \$ 3,344 at an average direct labor cost per hour of \$ 17.60 Actual variable MOH \$ 1,406 Actual fixed MOH \$ 1,490
All manufacturing overhead is allocated on the basis of direct labor hours.

Requirements
1. Calculate the standard cost of one batch.
2. Calculate the following variances:
a. The direct material variances.
b. The direct labor variances.
c. The variable manufacturing overhead variances.
3. Have the company’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why or why not?
4. Describe how the company’s managers can benefit from the standard costing system. Do you think the company should continue with the standard cost system?

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