Compute overhead variances using a four-variance analysis. 5. Assume that the purchasing agent for the valve plant purchased a lowerquality direct material from a new supplier. Would you recommend that the company continue to use this cheaper direct mat
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.
Petrillo Company produces engine parts for large motors. The company uses
a
sheet for one of its higher volume products (a valve) is as follows:
Direct materials (7 lbs @$5,4) $37,80
Direct labor (1,75 lbs @$18) $31,50
Variable
Fixed overhead (1,75 lbs @$3) $5,25
Standard unit cost $81,55
During the year, Petrillo had the following activity related to valve production:
a. Production of valves totaled 20,600 units.
b. A total of 135,400 pounds of direct materials was purchased at $5.36
per pound.
c. There were 10,000 pounds of direct materials in beginning inventory
(carried at $5.40 per pound). There was no ending inventory.
d. The company used 36,500 direct labor hours at a total cost of $656,270.
e. Actual fixed overhead totaled $110,000.
f. Actual variable overhead totaled $168,000.
Petrillo produces all of its valves in a single plant. Normal activity is 20,000
units per year. Standard overhead rates are computed based on normal
activity measured in standard direct labor hours.
Required:
4. Compute overhead variances using a four-
5. Assume that the purchasing agent for the valve plant purchased a lowerquality direct material from a new supplier. Would you recommend that the
company continue to use this cheaper direct material? If so, what standards
would likely need revision to reflect this decision? Assume that the end
product's quality is not significantly affected.
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