King manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are as follows.
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.
Question No.8
King manufacturing has four categories of
Maintenance Rs.70,000
Material Handling 30,000
Set-ups 25,000
Inspection 50,000
Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labor hours, 50,000 direct labor hour are budgeted for next year?
The company has been asked to submit a bid for a proposed job. The plant manager feels that obtaining this job would result in new business in future years. Usually, bids are based upon full
Estimates for the proposed job are as follows:
Direct material Rs.2,500
Direct labor (750 hours) Rs.3,750
Number of machine hours 300
Number of material moves 8
Number of Set-ups 3
Number of inspections 5
In past, full manufacturing cost has been calculated by allocating overhead using volume-based activity drivers, direct labor hours. The plant manager has heard of a new way of applying overhead that uses cost pools and activity drivers.
Expected activity for the four activity drivers that would be used is:
Machine hour 16,000
Material moves 4,000
Set-ups 2,000
Quality inspections 8,000
Required:
1: Determine the amount of overhead that would be allocated to the proposed job if direct labor hours are used as the volume-based activity driver.
Determine the total cost of the proposed job.
Determine company’s bid if the bid id based upon full manufacturing cost plus 30 percent.
2: Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used.
Determine the total cost of the proposed job if activity-based costing is used.
Determine the company’s bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.
3: Which product costing method produces the more competitive bid?
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