DMA, Inc., processes corn into corn starch and corn syrup. The company\'s produc

Question

DMA, Inc., processes corn into corn starch and corn syrup. The company's productivity and cost standards follow: From every bushel of corn processed, 13 pounds of starch and 5 pounds of syrup should be produced. Standard direct labor and variable overhead total $0.57 per bushel of corn processed Standard fixed overhead (the predetermined fixed overhead application rate) is $0.38 per bushel processed Required: a. Calculate the standard absorption cost per pound for the starch and syrup produced from the processing of 13,000 bushels of corn if the average cost per bushel is $1.93. (Do not round intermediate calculations. Round final answer to 3 decimal places.) Standard absorption cost per pound b. Comment about the usefulness of this standard cost for management planning and control purposes. This cost per pound is useful for management planning and control purposes

Explanation / Answer

a) Total Absorption Cost per bushel = Cost per bushel+Std direct labor and variable overhead+Std Fixed OH

= $1.93+$0.57+$0.38 = $2.88 per bushel processed

Total pounds processed = 13 pounds of starch+5 pounds of syrup = 18 pounds

Standard Absorption Cost per pound = $2.88/18 pounds = $0.16 per pound

b) The usefulness of this standard cost for management planning and control purposes.

Therefore the cost per pound is very useful for management planning and control purposes.

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