Evaluate the effects of erroneous standards
Response to the following problem:
During the year ended May 31, 2012, Teller Register Co. reported favorable raw material usage and direct labor and variable overhead efficiency variances that totaled $285,800. Price and rate variances were negligible. Total standard cost of goods manufactured during the year was $1,905,340.
Required:
a. Comment about the effectiveness of the company's standards for controlling material and labor usage.
b. If standard costs are used for valuing finished goods inventory, will the ending inventory valuation be higher or lower than if actual costs are used? Explain your answer.
c. Assume that the ending inventory of finished goods valued at standard cost is $158,780. Calculate the adjustment to finished goods inventory that would be appropriate because of the erroneous standards.