EX 23-3 Budget performance report

Time in a Bottle Company (TBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows:

                               Standard Cost 
                           per 100 Two-liter 
Cost Category           Bottles
Direct labor              $ 1.80
Direct materials          8.25
Factory overhead        0.50
Total                        $10.55


At the beginning of May, TBC management planned to produce 600,000 bottles. The 
actual number of bottles produced for May was 610,000 bottles. The actual costs for May of the current year were as follows:
                  
                                      Actual Cost for the  
Cost Category        month ended may 31, 2014
Direct labor                         $ 9,890
Direct materials                   48,450
Factory overhead                   3,460
Total                                   $61,800

a. Prepare the May manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for TBC, 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 May.

c.  Interpret the budget performance report.

Answer:

a. TIME IN A BOTTLE COMPANY 
Manufacturing Cost Budget 
For the Month Ended May 31, 2014 
 Standard Cost at 
Manufacturing costs:  
Direct labor $10,800 
Direct materials 49,500 
Factory overhead 3,000 
Total $63,300 
  
$1.80 × (600,000 ÷ 100) = $10,800  
$8.25 × (600,000 ÷ 100) = $49,500  
$0.50 × (600,000 ÷ 100) = $3,000  
  
Note:  The cost standards are expressed as “per 100 bottles.” 

b. TIME IN A BOTTLE COMPANY  
Manufacturing Costs—Budget Performance Report 
For the Month Ended May 31, 2014 
 
Actual 
Costs 
Standard Cost at 
Actual Volume 
(610,000 Bottles) 
Manufacturing costs:    
Direct labor $  9,890 $10,980 $(1,090) 
Direct materials 48,450 50,325 (1,875) 
Factory overhead 3,460 3,050 410 
Total manufacturing cost $61,800 $64,355 $(2,555) 
    
$1.80 × (610,000 ÷ 100) = $10,980    
$8.25 × (610,000 ÷ 100) = $50,325    
$0.50 × (610,000 ÷ 100) = $3,050    
    
c. Time in a Bottle Company’s actual costs were $2,555 less than budgeted. Favorable 
direct labor and direct material cost variances more than offset a small 
unfavorable factory overhead cost variance.