Custom Engines Company has the following estimated costs for the upcoming year: Direct labor costs $62,900 Direct materials used $25,800 Salary of factory supervisor $37,400 Sales commissions $8700 Heating and lighting costs for factory $22,400 Depreciation on factory equipment $5500 Advertising expense $33,600The company estimates that 2500 direct labor hours will be worked in the upcoming year, while 2000 machine hours will be used during the year. The predetermined manufacturing overhead rate per machine hour is closest to
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.
The Numerical has covered the concept of predetermined overhead,
The Predetermined overhead rate is calculated on the basis of Estimated Manufacturing Overhead and Estimated activity to be used in the production. The Formula used to calculate the predetermined overhead is given below,
= Estimated Total Manufacturing Cost / Estimated Activity Level
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