Problem 3

The Groves Company makes coffee cups from fine china. The company prepares flexible budgets and uses standard (budgeted) cost system to control manufacturing costs. The standard unit cost of a coffee cup is based on a static budgeted volume of 59,800 cups per month.

Direct materials (0.2 lbs. @ $0.25 per lb. $0.05

Direct labor (3 minutes @ $0.14 per minute 0.42

Manufacturing overhead:

Variable (3 minutes @ $0.06 per minute) $0.18

Fixed (3 minutes @ $0.13 per minute) 0.39 0.57

Total cost per coffee cup $1.04

Required:

1.Use the information above and the format followed in class, to prepare budgets for the following amounts: 59,800, 65,000 and 75,000 china cups.

2. Suppose that :

a. actual production ad sales were 62, 500 cups

b. actual direct labor usage was 11,000 pounds at an actual cost of $0.17 per lb.

c. actual direct labor usage was 197,000 minutes at a cost of $33,490.

Compute the price and efficiency variances for direct materials and direct labor.