Lock Nut has a standardcosting system for all manufactured items as part of its cost
control and management system. A standard cost for each item is setat the beginning of
the fiscal year. Standards are not revised during the year.However, planned variances are
included in Lock Nutâs monthly operating budgets to reflect changesin costs related to
modifications in the material and labor inputs or by changes in themanufacturing process.
The table below shows the laborstandards for one of Lock Nutâs products for the current
fiscal year.
Assembler â 2nd class (6 hr @$12) $72
Assembler â 1st class (3 hr @$16) $48
Master Machinist (2 hr @$20) $ 40
Standard cost per 100units $160
The budget standard wasbased on a labor team that includes six people with assembler
second-class skills, three people with assembler first-classskills, and two people with master
machinist skills. This team represents the most efficient use ofthe companyâs skilled
employees. The labor standard also assumed that the quality ofmaterials would remain the
same as that used in prior years.
For the first seven months ofthe fiscal year, actual manufacturing costs at Lock Nut
have been close to the established standards. Recently, the companyhas won several large
new orders. The firm does not have enough skilled workers availableto support the production
increases needed using the typical work team. Management has chosento restructure
the work teams used. Beginning in month eight, the production teamswill consist of
nine people with assembler second-class skills, one person withassembler first-class
skills, and one person with master machinist skills. Thereorganized teams will work more
slowly than the normal teams. As a result only 80 good units willbe produced in the same
time period 100 units would normally be produced. The overallquality of the production
units is expected to remain extremely high with the reorganizedteams.
Its major material supplierhas notified Lock Nut that due to shortages, lower-quality
materials will be supplied beginning at the start of month eight.Normally, one unit of raw
materials is required for each good unit produced, and no units arelost due to defective
material. Lock Nut estimates that 10 percent of the unitsmanufactured starting in month
eight will be rejected in the final inspection process due todefective material. (CMA
adapted and modified)
Required:
a. What is the amount of budgeted cost per good quality batchproduced?
b. Determine the number of units of lower-quality material thatLock Nut must start into
production in order to produce 62,000 good finished units.
c. How many hours of each class of labor must be used tomanufacture 62,000 good
finished units using the modified work teams?
Lock Nut has a standardcosting system for all manufactured items as part of its cost
control and management system. A standard cost for each item is setat the beginning of
the fiscal year. Standards are not revised during the year.However, planned variances are
included in Lock Nutâs monthly operating budgets to reflect changesin costs related to
modifications in the material and labor inputs or by changes in themanufacturing process.
The table below shows the laborstandards for one of Lock Nutâs products for the current
fiscal year.
Assembler â 2nd class (6 hr @$12) $72
Assembler â 1st class (3 hr @$16) $48
Master Machinist (2 hr @$20) $ 40
Standard cost per 100units $160
The budget standard wasbased on a labor team that includes six people with assembler
second-class skills, three people with assembler first-classskills, and two people with master
machinist skills. This team represents the most efficient use ofthe companyâs skilled
employees. The labor standard also assumed that the quality ofmaterials would remain the
same as that used in prior years.
For the first seven months ofthe fiscal year, actual manufacturing costs at Lock Nut
have been close to the established standards. Recently, the companyhas won several large
new orders. The firm does not have enough skilled workers availableto support the production
increases needed using the typical work team. Management has chosento restructure
the work teams used. Beginning in month eight, the production teamswill consist of
nine people with assembler second-class skills, one person withassembler first-class
skills, and one person with master machinist skills. Thereorganized teams will work more
slowly than the normal teams. As a result only 80 good units willbe produced in the same
time period 100 units would normally be produced. The overallquality of the production
units is expected to remain extremely high with the reorganizedteams.
Its major material supplierhas notified Lock Nut that due to shortages, lower-quality
materials will be supplied beginning at the start of month eight.Normally, one unit of raw
materials is required for each good unit produced, and no units arelost due to defective
material. Lock Nut estimates that 10 percent of the unitsmanufactured starting in month
eight will be rejected in the final inspection process due todefective material. (CMA
adapted and modified)
Required:
a. What is the amount of budgeted cost per good quality batchproduced?
b. Determine the number of units of lower-quality material thatLock Nut must start into
production in order to produce 62,000 good finished units.
c. How many hours of each class of labor must be used tomanufacture 62,000 good
finished units using the modified work teams?
