CAB company uses standard costing systems. The following information relates to standard costs for one unit of product ‘Zee’: Direct material 80 lb @$2 per lb Direct labour 1.25 hours @$16 per hour Variable overhead 30 minutes of machine time @$50 per hour Fixed overhead 30 minutes of machine time @$40 per hour. The overhead application rates were developed using a practical capacity of 6,000 units per year. Production is assumed to occur evenly throughout the year. During June 2021 the company produced 525 units. The actual costs for June 2021 are as follows: Direct material purchase 46,000 lb @$1.92 per lb Direct material used 43,050 pounds Total labour cost: $10,988.25 for 682.5 hours Variable overhead incurred $13,770 for 270 hours of machine time Fixed overhead incurred $10,600 for 270 hours of machine time
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
CAB company uses
Direct material 80 lb @$2 per lb
Direct labour 1.25 hours @$16 per hour
Variable
Fixed overhead 30 minutes of machine time @$40 per hour.
The overhead application rates were developed using a practical capacity of 6,000 units per year. Production is assumed to occur evenly throughout the year. During June 2021 the company produced 525 units.
The actual costs for June 2021 are as follows:
Direct material purchase 46,000 lb @$1.92 per lb
Direct material used 43,050 pounds
Total labour cost: $10,988.25 for 682.5 hours
Variable overhead incurred $13,770 for 270 hours of machine time
Fixed overhead incurred $10,600 for 270 hours of machine time
Required:
Calculate the followings:
a) Material price variance
b) Labour efficiency variance
c) Variable overhead spending and efficiency variances
d) Fixed overhead budget and volume variances
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