Question: Standard Costing Claro Company produces plastic bottles. The unit for costing purposes is a case of 18 bottles. The following standards for producing one case of bottles have been established:
Direct materials (5 lbs. @ $0.90) $ 4.50
Direct labor (1.5 hours @ $14.00) 21.00
Standard prime cost $25.50
During December, 78,000 pounds of material were purchased and used in production. There were 15,000 cases produced, with the following actual prime costs:
Direct materials $ 74,000
Direct labor $315,000 (for 22,500 hrs.)
Required: 1. Compute the materials variances.
2. Compute the labor variances.
3. Conceptual Connection: What are the advantages and disadvantages that can result from the use of a standard costing system?