Sample Problem Problem 31.3A Memphis Chemical Company manufactures a product called Tectate, which requires three raw materials. Production is in batches.

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Presentation transcript:

Sample Problem Problem 31.3A

Memphis Chemical Company manufactures a product called Tectate, which requires three raw materials. Production is in batches of 1,050 gallons of raw materials that yield only 1,000 gallons of finished product. (Some evaporation of the base occurs, but the amount of evaporation varies slightly from batch to batch.) The firm uses standard costs as a control device. Its standard costs for materials for each batch of Tectate have been established as follows. The output is packaged in 50-gallon drums. During the month of May 2007, 300 drums of Tectate were produced. There was no beginning or ending inventory of work in process. The materials actually used during May are listed below.

MEMPHIS CHEMICAL COMPANY Analysis of Materials Variance Month of May 2007

Total standard and actual costs and variances for each type of material StandardActualVariance Inert base3,0603, Acid3,7203, Activator7,8007, Totals 14,580 14, Computation of Standard Quantities Inert base: 300 x 50gal/1,000gal = 15 batches: 15 x 850 = 12,750 Acid: 15 batches x 160 = 2,400 Activator: 15 batches x 40 = 600 Analyze: only the activator was obtained at lower than standard cost

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