HYDROCHEM INC.

Presented by:
Harsh Malik(058)
Naman Prabhakar(078)
Pulkit Sharma(106)
Swapnil Agrawal(152)
 HYDROCHEM,INC.
HydroChem, Inc produces only one product – condutronic plates. The company uses
the real value of the process, but is considering changes to the standard cost system.
Production costs consist of raw materials, direct labor and manufacturing overhead
costs, and the company uses the full absorption cost.
Company’s current standard cost per plant is given as follows:
Particulars Amount
Raw Material (4 pounds at $ 2.50/pound) $ 10.00
Direct Labor (0.6 hours at $ 12.00/hour) $ 7.20
Manufacturing Overhead (allocated) $ 4.45
Total Standard manufacturing cost per plate $ 21.65

Additionally, it is given
Particulars Amount
Production per month 70000
Average sales price $ 27.00
Fixed Manufacturing Overhead $ 175,000.00
Variable Manufacturing Overhead $ 136,500.00
Total Manufacturing Overhead $ 311,500.00
MO per plate at normal production $ 4.45
Time to produce each plate (in hours) 1.5
Balance Sheet in the beginning
of the
Particulars
Month Amount
Assets
Raw Materials $ 90,000.00
(36,000 pounds at $ 2.50/pound)

Finished Goods $ 132,370.00

(6,100 plates at $ 21.70/plate)

Other assets $ 668,000.00

Total Assets $ 890,370.00
Liabilties & Equity

Accounts payable & accrued expenses $ 170,370.00

Other liabilties $ 140,000.00
Capital Stock $ 120,000.00
Retained Earnings $ 460,000.00
Total Liabilties and Equity $ 890,370.00
Expenses incurred during
the month.
Particulars Amounts
Raw Material Purchased (in pounds) 360000
Price per pound $ 2.60
Raw Material used in Production (in pounds) 328000
Machine Hours 116000
Direct Labor (in hours) 49600
Average direct labor cost per hour $ 11.80
Fixed Manufacturing Overhead $ 174,000.00
Variable Manufacturing Overhead $ 162,000.00
Total Manufacturing Overhead $ 336,000.00
Number of Plates Produced 80000
Number of Plates Sold 60000
Selling Price $ 26.95
Accounts Receivables collected $ 1,400,000.00
Accounts Payable & accrued expenses paid $ 800,000.00
 Question
• Prepare two income statements for the
month and the balance at the end of the
month. One set of financial statements shall
be prepared using the actual costing of the
company, and another set of financial
statements shall be prepared using the
proposed standard cost system.

• Refer Excel Sheet.

• Explain the differences between the two sets
of financial statements and take a position as
to which set of financial information they
should prefer.
• Actual costing and Standard costing method both
are required to get suitable information regarding
the processes and helps in identification of any
deviation from designated standard process.
• Standard costing system by detecting variance in
the actual process from standard process and
helps find out whether variance is in Material,
Labor or Overhead and take suitable corrective
actions if unfavorable and controllable.
• For Hydrochem Inc. since total variance is
unfavorable indicates that company is deviating
from its standard plan and can improve upon