Activity Total Budgeted Cost $ 12,000 3,100 Allocation Base Materials handling Machine setup Number of parts Number of setups Insertion of parts Finishing Total 42,000 Number of parts Finishing direct labor hours 86,000 $ 143,100
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.
Computing product costs in an activity-based costing system
Franklin, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers hate identified four manufacturing activities: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2018 and their allocation bases are as follows
Franklin expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts, require 10 setups, and consume 1,000 hours of finishing time.
Requirements
- Compute the predetermined
overhead allocation rate for each activity. - Compute the expected indirect
manufacturing cost of each bumper.
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