2. Compute the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.) 3. Determine the cost of goods sold for the year after any adjustment for underapplied or overapplied overhead. (Round predetermined overhead rate to 2 decimal places.)
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.
Savallas Company is highly automated and uses computers to control manufacturing operations. The company uses a
| Computer-hours | 82,000 | ||
| Fixed manufacturing overhead cost | $ | 1,275,000 | |
| Variable manufacturing overhead per computer-hour | $ | 3.10 | |
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During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:
| Computer-hours | 50,000 | ||
| Manufacturing overhead cost | $ | 1,016,000 | |
| Inventories at year-end: | |||
| Raw materials | $ | 440,000 | |
| Work in process | $ | 180,000 | |
| Finished goods | $ | 1,030,000 | |
| Cost of goods sold | $ | 2,780,000 | |
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Required:
1. Compute the company’s predetermined overhead rate for the year. (Round predetermined overhead rate to 2 decimal places.)
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2. Compute the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.)
3. Determine the cost of goods sold for the year after any adjustment for underapplied or overapplied overhead. (Round predetermined overhead rate to 2 decimal places.)
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