A company has numerous products and currently absorbs its production overheads based on labour hours; it has the following information: G H All products Budget (units) 2,400 3,000 Labour hours (£10/ hour) 1 hour 0.2 hours 1,000,000 Material cost / unit £2.00 £3.50 Material requisitions 4 8 4,000 Number of batches 6 3
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.
Difference
A company has numerous products and currently absorbs its production
|
|
G |
H |
All products |
|
Budget (units) |
2,400 |
3,000 |
|
|
Labour hours (£10/ hour) |
1 hour |
0.2 hours |
1,000,000 |
|
Material cost / unit |
£2.00 |
£3.50 |
|
|
Material requisitions |
4 |
8 |
4,000 |
|
Number of batches |
6 |
3 |
10,000 |
Overheads are budgeted as £2,500,000 for production set-up related and £1,200,000 for materials handling and storage related.
Required:
Calculate the unit cost for products G and H if the company was to adopt activity based costing and comment on the difference.
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