Activity-based costing Brooklyn Cycles produces custom bicycles and has used a traditional manufacturing overhead application rate based on direct labor hours. Currently, overhead is applied at the rate of $26/DLH. Brooklyn is now considering using activity-based driver rates to improve manufacturing overhead costing accuracy. Budgeted manufacturing overhead costs for expected driver activity are:Budgeted Cost Budgeted ActivityMachining time................... $250,000 10,000 hoursDirect labor time................. $280,000 20,000 hoursInspection time................... $ 32,000 4,000 hoursRequired:Calculate manufacturing overhead rates that would be applied to bicycles producedusing activity-based costing, and explain how Brooklyn Cycles could achieveimproved costing accuracy.
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.
Activity-based costing Brooklyn Cycles produces custom bicycles and has used a traditional manufacturing
Budgeted Cost Budgeted Activity
Machining time................... $250,000 10,000 hours
Direct labor time................. $280,000 20,000 hours
Inspection time................... $ 32,000 4,000 hours
Required:
Calculate manufacturing overhead rates that would be applied to bicycles produced
using activity-based costing, and explain how Brooklyn Cycles could achieve
improved costing accuracy.
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