Question

E25-1 Parsons Company is planning to produce 2,000 units of product in 2017. Each unit requires 3 pounds of materials at $5 per pound and a half-hour of labor at $16 per hour. The overhead rate is 70% of direct labor.

Instructions

(a) Compute the budgeted amounts for 2017 for direct materials to be used, direct labor, and applied overhead.

(b) Compute the standard cost of one unit of product.

(c) What are the potential advantages to a corporation of using standard costs?

Answer 1

a)budgeted amounts for 2017 for direct materials to be used, direct labor, and applied overhead
	Direct Material				$         30,000
	(2000 Units*3 pounds per unit *$5 per pound)
	Direct Labor				$         16,000
	(2000 units*0.5 hour per unit *$16 per hour)
	Variable Overhead				$         11,200
	(70%*$16000)
(b) the standard cost of one unit of product.
	Direct Material				$           15.00
	(3 pounds per unit *$5 per pound)
	Direct Labor				$              8.00
	(*0.5 hours per unit *$16 per hour)
	Variable Overhead				$              5.60
	(70%*$8)
	Standard Cost Of Per unit				$           28.60
c)	Standard costing helps to analyze the performance of the organization.
	Standard costing helps in controlling cost by way of variance analysis.