Determining Overhead Rate; Expected Actual Capacity Method. Desmond Corp. estimates that its production for the coming year will be 10,000 widgets, which is 80% of normal capacity, with the following unit costs: materials, $40; direct labor, $60. Direct labor is paid at the rate of $24 per hour. The widget shaper, the most expensive piece of machinery, must be run for 20 minutes to produce one widget. Total estimated overhead is expected to consist of $400,000 for variable overhead and $400,000 for fixed overhead. Compute the overhead rate for each of the following bases, using the expected actual capacity activity level:
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.
Determining
for the coming year will be 10,000 widgets, which is 80% of normal capacity, with the following unit costs:
materials, $40; direct labor, $60. Direct labor is paid at the rate of $24 per hour. The widget shaper, the most
expensive piece of machinery, must be run for 20 minutes to produce one widget. Total estimated overhead is
expected to consist of $400,000 for variable overhead and $400,000 for fixed overhead.
Compute the overhead rate for each of the following bases, using the expected actual capacity activity level:
direct labor hours
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