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Determining Unit Costs, Variance Analysis, and Interpretation
Happy Dog Company, a manufacturer of dog food, produces its product in 1,000-bag batches. The
standard cost of each batch consists of 8,000 pounds of direct materials at $0.60 per pound, 48 direct
labor hours at $13.25 per hour, and variable overhead cost (based on machine hours) at the rate of
$15 per hour with 16 machine hours per batch. The following variable costs were incurred for the last
1,000-bag batch produced:
Direct materials . . . . . . . . . . . . . . . . 8,300 pounds costing $4,731 were purchased and used
Direct labor. . . . . . . . . . . . . . . . . . . . 45 hours costing $675
Variable overhead. . . . . . . . . . . . . . . $338
Machine hours used. . . . . . . . . . . . . 18 hours
Required
a. Determine the actual and standard variable costs per bag of dog food produced, separated into
direct materials, direct labor, and variable overhead.
b. For the last 1,000-bag batch, determine the standard cost variances for direct materials, direct
labor, and variable overhead.
c. Explain the possible causes for each of the variances determined in requirement (b)
Answer & Explanation
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