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 90,000 direct labor hours. Required: 1. Prepare an overhead budget for the expected level of direct labor hours for the coming year.
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.
Flexible Budget for Various Levels of Activity
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 90,000 direct labor hours.
Required:1. Prepare an overhead budget for the expected level of direct labor hours for the coming year.
| Palladium Inc. | |||
| Overhead Budget | |||
| For the Coming Year | |||
| Variable costs: | Rate per Hour | Activity Level 90,000 Hours |
|
| Maintenance | $fill in the blank 336531fff03bfc2_1 | $fill in the blank 336531fff03bfc2_2 | |
| Power | fill in the blank 336531fff03bfc2_3 | fill in the blank 336531fff03bfc2_4 | |
| Indirect labor | fill in the blank 336531fff03bfc2_5 | fill in the blank 336531fff03bfc2_6 | |
| Total variable cost | $fill in the blank 336531fff03bfc2_7 | ||
| Fixed costs: | |||
| Maintenance | $fill in the blank 336531fff03bfc2_8 | ||
| Indirect labor | fill in the blank 336531fff03bfc2_9 | ||
| Rent | fill in the blank 336531fff03bfc2_10 | ||
| Total fixed costs | $fill in the blank 336531fff03bfc2_11 | ||
| Total overhead costs | $fill in the blank 336531fff03bfc2_12 | ||
2. Prepare an overhead budget that reflects production that is 15% higher than expected and for production that is 15% lower than expected.
| Activity Level | |||
| Rate per Hour | fill in the blank 66eb4800efee05a_1 Hours |
fill in the blank 66eb4800efee05a_2 Hours |
|
| Variable costs: | |||
| Maintenance | $fill in the blank 66eb4800efee05a_3 | $ fill in the blank 66eb4800efee05a_4 | $ fill in the blank 66eb4800efee05a_5 |
| Power | fill in the blank 66eb4800efee05a_6 | fill in the blank 66eb4800efee05a_7 | fill in the blank 66eb4800efee05a_8 |
| Indirect labor | fill in the blank 66eb4800efee05a_9 | fill in the blank 66eb4800efee05a_10 | fill in the blank 66eb4800efee05a_11 |
| Total variable costs | $fill in the blank 66eb4800efee05a_12 | $fill in the blank 66eb4800efee05a_13 | |
| Fixed costs: | |||
| Maintenance | $ fill in the blank 66eb4800efee05a_14 | $ fill in the blank 66eb4800efee05a_15 | |
| Indirect labor | fill in the blank 66eb4800efee05a_16 | fill in the blank 66eb4800efee05a_17 | |
| Rent | fill in the blank 66eb4800efee05a_18 | fill in the blank 66eb4800efee05a_19 | |
| Total fixed costs | $fill in the blank 66eb4800efee05a_20 | $fill in the blank 66eb4800efee05a_21 | |
| Total overhead costs | $fill in the blank 66eb4800efee05a_22 | $fill in the blank 66eb4800efee05a_23 |
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