Question

Standard Product Cost

Sana Rosa Furniture Company manufactures designer home furniture. Sana Rosa uses a standard cost system. The direct labor, direct materials, and factory overhead standards for an unfinished dining room table are as follows:

Direct labor:	standard rate	$21.00 per hr.
	standard time per unit	2.50 hrs.
Direct materials (oak):	standard price	$11.50 per bd. ft.
	standard quantity	17 bd. ft.
Variable factory overhead:	standard rate	$3.20 per direct labor hr.
Fixed factory overhead:	standard rate	$0.80 per direct labor hr.

a. Determine the standard cost per dining room table. If required, round your answer to two decimal places.
$per table

b. A standard cost system provides Rosa Furniture management a cost control tool using the principle of . Using this principle, cost deviations from standards can be investigated and corrected.

Answer 1

The comment in statement B is correct. Standard costing system provides the management a tool to investigate any cost deviations from standards and take corrective measures. Standard costing approach, if correctly applied, provides the management insights to investigate the root cause analysis of the variances. In case of material, various variances will indicate whether the material variances were replated to procurement prices or ineffeciant use. Similarly, for labour and overheads, various variance provide insights on whether the excess/short cost if on account of effeciency issues or rate issues. Identifying these help management take corrective action and rectify the root cause.