Time in a Bottle Company (TBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows

Time in a Bottle Company (TBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows:

                               Standard Cost 

                           per 100 Two-liter 

Cost Category           Bottles

Direct labor              $ 1.80

Direct materials          8.25

Factory overhead        0.50

Total                        $10.55

At the beginning of May, TBC management planned to produce 600,000 bottles. The 

actual number of bottles produced for May was 610,000 bottles. The actual costs for May of the current year were as follows:

                  

                                      Actual Cost for the  

Cost Category        month ended may 31, 2014

Direct labor                         $ 9,890

Direct materials                   48,450

Factory overhead                   3,460

Total                                   $61,800

a. Prepare the May manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for TBC, assuming planned production.

b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for May.

c.  Interpret the budget performance report.

Answer:

a. TIME IN A BOTTLE COMPANY 

Manufacturing Cost Budget 

For the Month Ended May 31, 2014 

 Standard Cost at 

Manufacturing costs:  

Direct labor $10,800 

Direct materials 49,500 

Factory overhead 3,000 

Total $63,300 

  

$1.80 × (600,000 ÷ 100) = $10,800  

$8.25 × (600,000 ÷ 100) = $49,500  

$0.50 × (600,000 ÷ 100) = $3,000  

  

Note:  The cost standards are expressed as “per 100 bottles.” 

b. TIME IN A BOTTLE COMPANY  

Manufacturing Costs—Budget Performance Report 

For the Month Ended May 31, 2014 

 

Actual 

Costs 

Standard Cost at 

Actual Volume 

(610,000 Bottles) 

Manufacturing costs:    

Direct labor $  9,890 $10,980 $(1,090) 

Direct materials 48,450 50,325 (1,875) 

Factory overhead 3,460 3,050 410 

Total manufacturing cost $61,800 $64,355 $(2,555) 

    

$1.80 × (610,000 ÷ 100) = $10,980    

$8.25 × (610,000 ÷ 100) = $50,325    

$0.50 × (610,000 ÷ 100) = $3,050    

    

c. Time in a Bottle Company’s actual costs were $2,555 less than budgeted. Favorable 

direct labor and direct material cost variances more than offset a small 

unfavorable factory overhead cost variance.