,000 592,725 36,500 573,025 38,500 Management assessed that 31,700 direct labor-hours is the normal capacity for the year. Before they started their April production, some P 10,000 of both wood fasteners and mahogany blanks were still unused but clocks worth 15,780 are ready to be finished. Si
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
MALAYA Inc. is a small New England company that manufactures custom clocks. It uses normal costing system that applies factory overhead on the basis of direct labor hours. Factory overhead for the past years were listed below along with the direct labor hours spent:
Factory Overhead Direct Labor Hours
P 549,750 35,000
505,400 36,000
529,800 32,000
592,725 36,500
573,025 38,500
Management assessed that 31,700 direct labor-hours is the normal capacity for the year. Before they started their April production, some P 10,000 of both wood fasteners and mahogany blanks were still unused but clocks worth 15,780 are ready to be finished. Since the products were on demand last quarter, all finished clocks were sold before April. These transactions were recorded during April:
- April insurance cost for the manufacturing property and equipment was P1,495. The premium had been paid in January.
- Recorded P1,025
depreciation on an administrative asset. - Purchased 21 pounds of high-grade wood fasteners on account at P15 per pound (indirect material).
- Paid factory utility bill, P6,510 in cash.
- Incurred and paid payroll costs of P80,300. Of this amount, P64,000 were for direct labor personnel who earned P20 per hour on average.
- Incurred and paid other
factory overhead costs , P5,770. - Purchased 2,100 unfinished mahogany blanks on account at P11 per blank.
- Requisitioned 1,495 mahogany blanks and 13 pounds of fasteners for production.
- Incurred miscellaneous selling and administrative expenses, P5,660.
- Incurred P3,505 depreciation on manufacturing equipment for April.
- Paid advertising expenses in cash, P2,350.
- Applied factory overhead to production on the basis of direct labor-hours.
- Made sales on account in August, P96,450. Cost of goods sold for the period is 84,500.
- Work-in Process at the end of April, before any adjustments for over or under applied overhead was P56,355.
REQUIRED:
- Compute for the predetermined overhead rate using high-low method.
- Journalize the entries for April.
- Compute for the over- or underapplied overhead and make the necessary
adjusting journal entry if management assessed that it is material.
Make an income statement for the month of April for MALAYA Inc with necessary schedules (CGM & COGS, if applicable).
Step by step
Solved in 2 steps with 1 images
