Question

CHAP 22

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	$4.00
Direct materials	9.10
Factory overhead	0.55
Total	$13.65

At the beginning of July, GBC management planned to produce 380,000 bottles. The actual number of bottles produced for July was 385,000 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	$14,860
Direct materials	33,824
Factory overhead	2,582
Total	$51,266

	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. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
C.	Interpret the budget performance report. A. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for GBC, assuming planned production. Genie in a Bottle Company Manufacturing Cost Budget For the Month Ended July 31, 2016 1 Manufacturing Costs Standard Cost at Planned Volume (380,000 Bottles) 2 Direct labor 3 Direct materials 4 Factory overhead 5 Total B. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Genie in a Bottle Company Budget Performance Report For the Month Ended July 31, 2016 1 Manufacturing Costs Actual Costs Standard Cost at Actual Volume (385,000 Bottles) Cost Variance—(Favorable) Unfavorable 2 Direct labor 3 Direct materials 4 Factory overhead 5 Total manufacturing costs

Answer 1

Solution A:

Genie in a Bottle Company
Manufacturing Cost Budget
For the Month Ended July 31, 2016
1	Manufacturing Costs	Standard Cost at Planned Volume (380,000 Bottles)
2	Direct labor	$15,200.00
3	Direct materials	$34,580.00
4	Factory overhead	$2,090.00
5	Total	$51,870.00

Solution B:

Genie in a Bottle Company
Budget Performance Report
For the Month Ended July 31, 2016
1	Manufacturing Costs	Actual Costs	Standard Cost at Actual Volume (385,000 Bottles)	Cost Variance — (Favorable) Unfavorable
2	Direct labor	$14,860.00	$15,400.00	-$540.00
3	Direct materials	$33,824.00	$35,035.00	-$1,211.00
4	Factory overhead	$2,582.00	$2,117.50	$464.50
5	Total manufacturing costs	$51,266.00	$52,552.50	-$1,286.50

Note: It is assumed that factory overhead given in question are variable in nature.

Solution C:

From above budget performance report , it is clear that direct material cost and direct labor cost are under control during the period as actual cost incurred is less than standard cost resulting favorable cost variance. However factory overhead cost is higher than standard resulting in unfavorable variance. Company should focus on controlling the factory overhead. Overall actual performance in favorable as total cost variance is favorable.