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.