Wood Designs Company manufactures unfinished oak furniture. Wood Designs uses a standard cost system.

Wood Designs Company manufactures unfinished oak furniture. Wood Designs uses a standard cost system. The direct labor, direct materials, and factory overhead standards for an unfinished dining room table are as follows:

Direct labor: standard rate $18.00 per hr.
              standard time per unit 2.0 hrs.

Direct materials (oak): standard price $15.00 per bd. ft.
                        standard quantity 20.0 bd. ft.

Variable factory overhead: standard rate $2.75 per direct labor hr.

Fixed factory overhead: standard rate $1.25 per direct labor hr.

a. Determine the standard cost per dining room table.
b.  Why would Wood Designs Company use a standard cost system?

Answer:


a. Direct labor………………………………………… $18.00 × 2.0 hrs. $  36.00 
 Direct materials…………………………………… $15.00 × 20 bd. ft. 300.00 
 Variable factory overhead……………………… $2.75 × 2.0 hrs. 5.50 
 Fixed factory overhead…………………………… $1.25 × 2.0 hrs.   2.50 
Total cost per unit………………………………  $344.00 
b. A standard cost system provides Wood Designs’ management a cost control tool 
using the principle of management by exception. Using this principle, costs that 
deviate significantly from standards can be investigated and corrected. The 
standard cost system also can be used to motivate employees to work efficiently 
with their time, use of materials, and other factory overhead resources.