Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 50

Standard absorption cost per unit DMA, Inc., processes corn into corn starch and corn syrup. The company’s productivity and cost standards follow:

From every bushel of corn processed, 12 pounds of starch and 6 pounds of syrup should be produced.

Standard direct labor and variable overhead total $0.86 per bushel of corn processed.

Standard fixed overhead (the predetermined fixed overhead application rate) is $0.66 per bushel processed.

Required:

a. Calculate the standard absorption cost per pound for the starch and syrup produced from the processing of 15,000 bushels of corn if the average cost per bushel is $5.68.

---

b. Comment about the usefulness of this standard cost for management planning and control purposes.

Step 1 of 2

a)

Calculate the standard absorption cost per pound for the starch and syrup produced from the processing of 15,000 bushels of corn if the average cost per bushel is $5.68

The standard absorption cost per pound of starch and syrup produced by DMA, Inc. is as follows:

It is given that each bushel produces 12 pounds of starch and 6 pounds of syrup, hence,

Cost per pound can be calculated by using the formula below:

Substitute values from above calculations:

Thus, the absorption cost per pound of product is.