ABC employs a job-order costing system, with overhead calculated based on direct worker hours. Management predicted that 125,000 direct labour hours would be worked and RM450,000 in manufacturing overhead expenditures would be incurred at the start of the year. The company performed 130,000 direct labour hours during the year and incurred the following manufacturing costs: RM Direct materials used in production 380,000 Direct labor 400,000 Indirect labor 95,000 Indirect materials 67,500 Insurance (30% for factory assets) 30,000 Utilities (60% used for production) 42,000 Repairs and maintenance (100% for factory assets) 25,000 Depreciation on machine used in production 105,000 Depreciation on fixed assets in corporate block 78,000 Calculate the predetermined overhead rate for the year.
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.
ABC employs a
The company performed 130,000 direct labour hours during the year and incurred the following
| RM | |
| Direct materials used in production | 380,000 |
| Direct labor | 400,000 |
| Indirect labor | 95,000 |
| Indirect materials | 67,500 |
| Insurance (30% for factory assets) | 30,000 |
| Utilities (60% used for production) | 42,000 |
| Repairs and maintenance (100% for factory assets) | 25,000 |
| 105,000 | |
| Depreciation on fixed assets in corporate block | 78,000 |
Calculate the predetermined overhead rate for the year.
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