Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 61

Standard Manufacturing Cost Per Unit Cain Company has an automated production process; consequently, it uses machine hours to describe production activity. The company employs a full absorption cost system. The annual profit plan for the coming fiscal year is finalized each April. The profit plan for the fiscal year ending May 31 called for production of 6,000 units, requiring 30,000 machine hours. The full absorption cost rate for the fiscal year was determined using 6,000 units of planned production. Cain develops flexible budgets for different levels of activity to use in evaluating performance. During the fiscal year, Cain produced 6,200 units requiring 32,000 machine hours. The following schedule compares Cain Company’s actual costs for the fiscal year with the profit plan and the budgeted costs at two different activity levels:

CAIN COMPANY Manufacturing Cost Report For the Fiscal Year Ended May 31 (in thousands of dollars)
Item	Flexible Budget
	Profit Plan (6,000 units)	31,000 Machine Hours	32,000 Machine Hours	Actual Costs
Direct material:
G27 aluminum	$ 252.0	$ 260.4	$ 268.8	$ 270.0
M14 steel alloy	78.0	80.6	83.2	83.4
Direct labor:
Assembler	273.0	282.1	291.2	287.0
Grinder	234.0	241.8	249.6	250.0
Manufacturing overhead:
Maintenance	24.0	24.8	25.6	25.0
Supplies	129.0	133.3	137.6	130.0
Supervision	80.0	82.0	84.0	81.0
Inspectors	144.0	147.0	150.0	147.0
Insurance	50.0	50.0	50.0	50.0
Depreciation	200.0	200.0	200.0	200.0
Total cost	$1,464.0	$1,502.0	$1,540.0	$1,523.4

Required Compute these:

1. The actual cost of material used per unit of product produced this year.

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2. The standard materials cost per machine hour.

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3. The budgeted direct labor cost for each unit produced.

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4. The standard variable overhead rate per machine hour.

5. The production-volume variance for the current year. Can you suggest an improved method for determining the fixed overhead allocation rate?

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6. The total overhead spending variance for the year.

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7. The total budgeted manufacturing cost for an output of 6,050 units.

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8. Comment on how individual fixed overhead items are controlled on a day-to-day basis. How are individual variable overhead items controlled from day-to-day?

Step 1 of 24

Standard cost: