Cost Accounting and Variance

Problem 1. Production Budget (L03)

Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:

Sales in Units

July ........................... 30,000
August ........................ 45,000
September .................... 60,000
October ....................... 50,000

The company is now in the process of preparing a production budget for the third quarter. Past experience has shown that end - of - month inventories of finished goods must equal 10 % of the next month's sales. The inventory at the end of June was 3,000 units.

Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.

Problem 2. Setting Standards (L01)

Czar Nicholas Chocolatier, Ltd. Makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company's products, the Imperial Truffle. This product is made with the finest white chocolate and various fillings. The data below pertain only to the white chocolate used in the product:

Material requirements, kilograms of white chocolate per dozed truffles..... 0.82 kilograms
Allowance for waste, kilograms of white chocolate per dozen truffles...... 0.02 kilograms
Allowance for rejects, kilograms of white chocolate per dozen truffles...... 0.03 kilograms
Purchase price, finest grade white chocolate..................................... 9.00 per kilogram
Purchase discount ................................................................... 5% of purchase price
Shipping cost from the supplier in Belgium ..................................... 0.20 per kilogram
Receiving and handling cost ....................................................... 0.05 per kilogram

Required:
1. Determine the standard price of a kilogram of white chocolate.
2. Determine the standard quantity of white chocolate for a dozen truffles.
3. Determine the standard cost of the white chocolate in a dozen truffles.

Probem 3. Material Variances (L02)

Harmon Household Products, Inc. Manufactures a number of consumer items for general household use. One of these products, a chopping block, requires an expensive hardwood. During a recent month, the company manufactured 4,000 chopping blocks using 11,000 board feet of hardwood. The hardwood cost the company $18,700.

The company's standards for one chopping block are 2.5 board feet of hardwood, at a cost of $1.80 per board foot.

Required:

1. What cost for wood should have been incurred to make 4,000 chopping blocks? How much greater or less is this than the cost that was incurred?
2. Break down the difference computed in (1) above into a materials price variance and a materials quantity variance.