Question

Lopez Company uses both standards and budgets. For the year, estimated production of Product X is 500,000 units. Total estimated cost for materials and labor are $1,400,000 and $1,700,000. Compute the estimates for (a) a standard cost and (b) a budgeted cost. Distinguish between a standard and a budget.

Answer 1

Answer:

(a) $2.80; 3.40

(b) $1,400,000; $1,700,000

Explanation:

(a) Standards are stated as a per unit amount.

Therefore,

standard materials:

= Total estimated cost for materials ÷ Estimated production of Product X

= $1,400,000 ÷ 500,000

= $2.80

Standard labor:

= = Total estimated cost for labor ÷ Estimated production of Product X

= $1,700,000 ÷ 500,000

= $3.40

(b) Budgets are stated as a total amount.

Thus, the budgeted costs for the year are materials $1,400,000 and labor $1,700,000.