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Savannah Machine Tool Company

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The Savannah Machine Tool Company has an automated production process, and production activity is quantified in terms of machine hours. It uses a standard-costing system. The annual static budget for 20x6 called for 6,000 units to be produced, requiring 30,000 machine hours. The standard-overhead rate for the year was computed using this planned level of production.

The company produced a total of 6,200 units during 20x6, requiring 32,000 machine hours. The preceding manufacturing cost report compares the company's actual cost for the year with the static budget and the flexible budget for two different activity levels.

Required
Compute the following amounts. For variances, indicate favorable or unfavorable where appropriate. Answers should be rounded to two decimal places when necessary.

a. The standard number of machine hours allowed to produce one unit of product.

b. The cost of material that should be processed per machine hour.

c. The standard direct-labor cost for each unit produced.

d. The variable-overhead rate per machine hour in a flexible-budget formula. (Hint: Use the high-low method to estimate cost behavior. In the high-low method of cost estimation, the difference between the cost levels at the high and low activity levels is divided by the difference between the high and low activity levels. This quotient provides a simple estimate of the variable cost rate per unit of activity.)

e. The total budgeted manufacturing cost (in thousands of dollars) for an output of 6,050 units. (Hint:Use the flexible-budget formula.)

f. The actual cost of direct material used in one unit of product.

SAVANNAH MACHINE TOOL COMPANY
Manufacturing Cost Report
For the Year 20x6
(in thousands of dollars)

Static Budget Flexible Budget

Cost Item 30,000 Machine Hours 31,000 Machine Hours 32,000 Machine Hours Actual Cost
Direct material:
G27 aluminum 252,000.0 260,400.0 268,800.0 270,000.0
M14 steel alloy 78,000.0 80,600.0 83,200.0 83,000.0

Sub-totals 330,000.0 341,000.0 352,000.0 353,000.0
Direct labor:
Assembler 273,000.0 282,100.0 291,200.0 287,000.0
Grinder 234,000.0 241,800.0 249,600.0 250,000.0

Sub-totals 507,000.0 523,900.0 540,800.0 537,000.0
Manufacturer
Overhead:
Maintenance 24,000.0 24,800.0 25,600.0 25,000.0
Supplies 129,000.0 133,300.0 137,600.0 130,000.0
Supervision 80,000.0 82,000.0 84,000.0 81,000.0
Inspection 144,000.0 147,000.0 150,000.0 147,000.0
Insurance 50,000.0 50,000.0 50,000.0 50,000.0
Depreciation 200,000.0 200,000.0 200,000.0 200,000.0

Sub-totals 627,000.0 637,100.0 647,200.0 633,000.0

TOTAL COST $1,464,000.0 $1,502,000.0 $1,540,000.0 $1,523,000.0

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a. The standard number of machine hours allowed to produce one unit of product.

Standard Machine hours to produce one unit = 30,000/6,000=5 hours/unit

b. The cost of material that should be processed per machine hour.

Standard hours for 6,200 units = 6,200X5=31,000 hours
Total standard materials at 31,000 machine hours
$260,400 + $80,600 = $341,000
Number of machine hours  31,000
Standard materials cost per machine hour $11.00

c. The standard direct-labor cost for each unit produced.

Budgeted direct labor cost for 6,000 units:
Assembler $273,000
Grinder ...

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