Palladium Inc. produces a variety of household cleaning products. Palladium’s controller has developed standard costs for the following four overhead items: Overhead Item Total Fixed Cost Variable Rate per Direct Labor Hour Maintenance $86,000 $0.20 Power 0.45 Indirect labor 140,000 2.10 Rent 35,000 Next year, Palladium expects production to require 88,000 direct labor hours Exercise 9-63 Flexible Budget for Various Levels of Activity Refer to the information for Palladium Inc. above. Required: 1. Prepare an overhead budget for the expected level of direct labor hours for the coming year. 2. Prepare an overhead budget that reflects production that is 15% higher than expected and for production that is 15% lower than expected.
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.
Palladium Inc. produces a variety of household cleaning products. Palladium’s controller has developed
Overhead Item Total Fixed Cost Variable Rate per Direct Labor Hour
Maintenance $86,000 $0.20
Power 0.45
Indirect labor 140,000 2.10
Rent 35,000
Next year, Palladium expects production to require 88,000 direct labor hours
Exercise 9-63 Flexible Budget for Various Levels of Activity
Refer to the information for Palladium Inc. above.
Required:
1. Prepare an overhead budget for the expected level of direct labor hours for the coming year.
2. Prepare an overhead budget that reflects production that is 15% higher than expected and for production that is 15% lower than expected.
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