HB Corporation in Delaware, U.S., makes and sells a single product. The company operates a standard costing system and a just-in-time purchasing and production system. No inventory of raw materials or finished goods is held. Details of the budget and actual data for the previous period are given below: Budget data Standard production costs per unit (currency in U.S. dollar, $): Direct material 8kg @$10.80 per kg 86.40 Direct labor 1.25 hours @$18.00 per hour 22.50 Variable overheads 1.25 hours @$6.00 per direct labor hour 7.50 Standard selling price: $180 per unit Budgeted fixed production overheads: $170 000 Budgeted production and sales: 10 000 units Actual data Direct material: 74 000kg @$11.20 per kg Direct labor: 10,800 hours @$19.00 per hour Variable overheads: $70,000 Actual selling price: $184 per unit Actual fixed production overheads: $168 000 Actual production and sales: 9000 units Requirements 1. Calculate the variances that would be different and any additional variances that would be required if the reconciliation statement was prepared using standard absorption costing. 2. Explain the arguments for the use of traditional absorption costing rather than marginal costing for profit reporting and inventory valuation.
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.
- HB Corporation in Delaware, U.S., makes and sells a single product. The company operates a
standard costing system and a just-in-time purchasing and production system. No inventory of raw materials or finished goods is held. Details of the budget and actual data for the previous period are given below:
Budget data
Standard production costs per unit (currency in U.S. dollar, $):
Direct material 8kg @$10.80 per kg 86.40
Direct labor 1.25 hours @$18.00 per hour 22.50
Variable
Standard selling price: $180 per unit
Budgeted fixed production overheads: $170 000
Budgeted production and sales: 10 000 units
Actual data
Direct material: 74 000kg @$11.20 per kg
Direct labor: 10,800 hours @$19.00 per hour
Variable overheads: $70,000
Actual selling price: $184 per unit
Actual fixed production overheads: $168 000
Actual production and sales: 9000 units
Requirements
1. Calculate the variances that would be different and any additional variances that would be required if the
2. Explain the arguments for the use of traditional absorption costing rather than marginal costing for profit reporting and
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