1. How are standards developed? What is the difference between ideal and currently attainable standards?

ANS: 

Historical experience, engineering studies, and input from operating personnel are three potential sources of quantitative standards.

Ideal standards are standards that demand maximum efficiency and can be achieved only if everything operates perfectly. No machine breakdowns, slack, or lack of skill are allowed.

Currently attainable standards can be achieved under efficient operating conditions. Allowance is made for normal breakdowns, interruptions, less than perfect skill, and so on.

2.   The following standard costs were developed for one of the John Miller Company’s products:

STANDARD COST CARD PER UNIT

Materials: 10 pounds ´ $8 per pound $80.00
Direct labor: 3 hours ´ $32 per hour 96.00
Variable manufacturing overhead: $20 per hour ?
Fixed manufacturing overhead      ?
Total standard cost per unit      ?

The following information is available regarding the company’s operations for the period:

Units produced: 15,000
Materials purchased: 180,000 pounds @ $7.20 per pound
Materials used: 160,000 pounds
Direct labor: 18,000 hours @ $37.00 per hour
   
Manufacturing overhead incurred:  
    Variable $880,000
    Fixed $2,560,000

Budgeted fixed manufacturing overhead for the period is $2,400,000, and expected capacity for the period is 40,000 direct labor hours.

Required:

a. Calculate the standard fixed manufacturing overhead rate.
b. Complete the standard cost card for the product.

ANS: 

a. $60 per DLH $2,400,000/40,000
     
b. STANDARD COST CARD PER UNIT
     
  Material: 10 pounds ´ $8/pound $ 80.00
  Direct labor: 3 hours ´ $32/hour 96.00
  Variable overhead: 3 hours ´ $20/hour 60.00
  Manufacturing overhead: 3 hours ´ $60/hour  180.00
  Total standard cost per unit $416.00

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