Donovan & Parents produces soccer shorts and jerseys for youth leagues. Most of the production is done by machine. Data on operations and costs for March follow. Jerseys Shorts Total Units produced 9,700 4,400 14,100 Machine-hours used 980 810 1,790 Direct labor-hours 190 100 290 Direct materials costs $ 12,900 $ 7,600 $ 20,500 Direct labor costs $ 3,800 $ 2,000 $ 5,800 Manufacturing overhead costs $ 24,154 Management asks the firm’s cost accountant to compute product costs. The accountant first assigns overhead costs to two pools: overhead related to direct materials and overhead related to machine-hours. The analysis of overhead accounts by the cost accountant follows. Account Amount Related to: Utilities $ 4,000 Machine-hours Supplies 2,830 Materials Machine depreciation and maintenance 9,834 Machine-hours Purchasing and storing materials 4,140 Materials Miscellaneous 3,350 Machine-hours Required: a. Compute the predetermined overhead rates assuming that Donovan uses machine-hours to allocate machine-related overhead costs and materials costs to allocate materials-related overhead costs. b. Compute the total costs of production and the cost per unit for each of the two products for March.
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.
Donovan & Parents produces soccer shorts and jerseys for youth leagues. Most of the production is done by machine. Data on operations and costs for March follow.
| Jerseys | Shorts | Total | |||||||
| Units produced | 9,700 | 4,400 | 14,100 | ||||||
| Machine-hours used | 980 | 810 | 1,790 | ||||||
| Direct labor-hours | 190 | 100 | 290 | ||||||
| Direct materials costs | $ | 12,900 | $ | 7,600 | $ | 20,500 | |||
| Direct labor costs | $ | 3,800 | $ | 2,000 | $ | 5,800 | |||
| $ | 24,154 | ||||||||
Management asks the firm’s cost accountant to compute product costs. The accountant first assigns overhead costs to two pools: overhead related to direct materials and overhead related to machine-hours. The analysis of overhead accounts by the cost accountant follows.
| Account | Amount | Related to: | ||
| Utilities | $ | 4,000 | Machine-hours | |
| Supplies | 2,830 | Materials | ||
| Machine depreciation and maintenance | 9,834 | Machine-hours | ||
| Purchasing and storing materials | 4,140 | Materials | ||
| Miscellaneous | 3,350 | Machine-hours | ||
Required:
a. Compute the predetermined overhead rates assuming that Donovan uses machine-hours to allocate machine-related overhead costs and materials costs to allocate materials-related overhead costs.
b. Compute the total costs of production and the cost per unit for each of the two products for March.
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