Question

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			$1.52
Direct materials			6.18
Factory overhead			0.34
	Total		$8.04

At the beginning of July, GBC management planned to produce 670,000 bottles. The actual number of bottles produced for July was 723,600 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						$10,779
Direct materials						43,645
Factory overhead						2,485
	Total					$56,909

Enter all amounts as positive numbers.

a. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for WBC, assuming planned production.

Genie in a Bottle Company
Manufacturing Cost Budget
For the Month Ended July 31
	Standard Cost at Planned Volume(670,000 Bottles)
Manufacturing costs:
Direct labor	$
Direct materials
Factory overhead
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. If required, round your answers to nearest cent.

Genie in a Bottle Company
Manufacturing Costs-Budget Performance Report
For the Month Ended July 31
	Actual Costs	Standard Cost at Actual Volume(723,600 Bottles)	Cost Variance- (Favorable) Unfavorable
Manufacturing costs:
Direct labor	$	$	$
Direct materials
Factory overhead
Total manufacturing cost	$	$	$

c. The Company's actual costs were $1268.44 than budgeted. direct labor and direct material cost variances more than offset a small factory overhead cost variance.

Answer 1

a. The July manufacturing standard cost budget is given as per following table:

	Standard Cost per 100 Two-Liter Bottles	Standard Cost per Two-Liter Bottle	Standard Cost at Planned Volume (670,000 Bottles)
Base Unit	100	1	6,70,000
Manufacturing costs:
Direct labor	1.52	0.0152	10184.00
Direct materials	6.18	0.0618	41406.00
Factory overhead	0.34	0.0034	2278.00
Total	8.04	0.0804	53868.00

Explanation:

From the cost of 100 bottles, per bottle cost is arrived by dividing the cost by 100.

eg Direct labour cost per bottle = 1.52/100 = 0.0152

From per bottle cost, we can arrive at cost for the planned bottles (670,000) by multiplying per bottle cost with 670,000

eg Direct labour cost for planned bottles = 0.0152 x 670,000 = 10184

------------End of Part A----------

b. Manufacturing Costs-Budget Performance Report for the month of July is given as follows

	Standard Cost per Two-Liter Bottle	Standard Cost at Actual Volume (723,600 Bottles)	Actual Cost at volume of 723,600	Cost Variance (Favourable/ Unfavourable)
Base Unit	1	723600	723600
Manufacturing costs:
Direct labor	0.0152	10998.72	10779	-219.72
Direct materials	0.0618	44718.48	43645	-1073.48
Factory overhead	0.0034	2460.24	2485	24.76
Total manufacturing cost	0.0804	58177.44	56909	-1268.44

Explanation

From per bottle cost, we can arrive at cost for the Actual bottles (723,600) by multiplying per bottle cost with 723,600

eg Direct labour cost for planned bottles = 0.0152 x 723,600 = 10779

The variance is obtained as Actual cost - Standard cost

eg Direct Labour variance = 10779 - 10998.72 = -219.72 (Favorable)

Interpretation of variance -

Direct labour cost and direct material cost incurred in actual are less than standard cost of direct labour and direct material cost. This is favourable to the company.

Factory overhead cost incurred in actual is more than standard factory overhead cost. This is unfavourable to company.

-------------End of part B-------------

c. The Company's actual costs were $1268.44 less than budgeted. direct labor and direct material cost variances more than offset a small factory overhead cost variance. Thus overall the company has produced the higher number of bottles within overall budget.

----------End of Part C -----------------

IMP NOTE: