Standard Costing

Botella Company produces plastic bottles. The unit for costing purposes is a case of 18 bottles. The following standards for producing one case of bottles have been established:

Direct materials (4 lbs. @ $0.95)	$ 3.80
Direct labor (1.25 hours @ $15.00)	18.75
Standard prime cost	22.55

During December, 78,000 pounds of material were purchased and used in production. There were 15,000 cases produced, with the following actual prime costs:

Direct materials	$ 74,000
Direct labor	$315,000 (for 22,500 hrs.)

Required:

1. Compute the materials variances. If there is no variance, enter "0" in the amount box and select "No variance" from the dropdown menu.

Materials price variance	$fill in the blank 1
Materials usage variance	$fill in the blank 3
Overall materials variance	$fill in the blank 5

2. Compute the labor variances. If there is no variance, enter "0" in the amount box and select "No variance" from the dropdown menu.

Labor rate variance	$fill in the blank 7
Labor efficiency variance	$fill in the blank 9
Overall labor variance	$fill in the blank 11

3. What are the advantages that can result from the use of a standard costing system?

1. Standard costing helps in planning, control, and decision making.
2. Standard costing helps in budgeting.
3. Standard costs are used in control to evaluate performance.
4. Standard costs assist in decision making.
5. Standard costing helps is delivering better products
6. All of the above.

What are the dis-advantages that can result from the use of a standard costing system?

• I. Too high a standard may cause motivation to decrease as they are never achievable.
• II. Standards have to be frequently updated.
• III. Standards help very little in improving the quality as they are based on past data.
• IV. Standards do not help in planning as the future is unpredictable.