At the end of year, was manufacturing overhead over- or under-applied? Refer to the previous question. By what amount was manufacturing overhead over- or under-applied? What is Cost of Goods Sold, after adjusting for any under-or over-applied overhead?
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.
At Allen Company, manufacturing
Actual direct labor hours and actual direct labor costs for the year amounted to 400,000 hours and $700,000.
In addition, Allen Company incurred the following actual costs during the year:
- Administrative expenses, $100,000
Depreciation expense on fixed assets, $500,000 (80% of the depreciation expense was related to manufacturing activities)- Indirect material costs, $25,000
- Indirect labor costs, $45,000
- Utility expense on the manufacturing facility, $125,000
- Insurance expense on the manufacturing facility, $35,000
- Marketing expenses, $75,000
- Sales & promotion expenses, $25,000
Allen Company had the following inventory balances at the beginning and end of the year:
|
|
January 1 |
December 31 |
|
|
Finished goods |
$450,000 |
$675,000 |
|
|
Work in process |
600,000 |
650,000 |
|
|
Raw (direct) materials |
350,000 |
400,000 |
|
During the year, the company purchased $150,000 of raw materials and generated sales of $2,500,000.
- At the end of year, was manufacturing overhead over- or under-applied?
- Refer to the previous question. By what amount was manufacturing overhead over- or under-applied?
- What is Cost of Goods Sold, after adjusting for any under-or over-applied overhead?
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