Cole Laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows:
- Standard Standard Cost
- Quantity per bag
- Direct material 20 pounds $8.00
- Direct labor 0.1 hours $1.10
- Variable overhead 0.1 hours $0.40
The company had no beginning inventories of any kind on January 1. Variable overhead is applied to production on the basis of standard direct-labor hours. During January, the company recorded the following activity:
• Production of Fastgro: 4,000 bags
• Direct materials purchased: 85,000 pounds at a cost of $32,300
• Direct-labor worked: 390 hours at a cost of $4,875
• Variable overhead incurred: $1,475
• Inventory of direct materials on January 31: 3,000 pounds