Question:
Vernon Bottle Company (VBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows:
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Standard Cost
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per 100 Two-Liter
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Cost Category
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Bottles
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Direct labor
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$1.28
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Direct materials
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5.21
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Factory overhead
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0.42
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Total
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$6.91
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At the beginning of August, VBC management planned to produce 620,000 bottles. The actual number of bottles produced for August was 650,000 bottles. The actual costs for August of the current year were as follows:
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Actual Cost for the
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Cost Category
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Month Ended August 31, 2008
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Direct labor
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$ 8,200
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Direct materials
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34,500
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Factory overhead
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2,800
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Total
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$45,500
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a. Prepare the August manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for VBC, 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 August.
c. Interpret the budget performance report.