Perez Manufacturing Company produced 2,700 units of inventory in January, Year 2. It expects to produce an additional 9,000 units during the remaining 11 months of the year. In other words, total production for year 2 is estimated to be 11,700 units. Direct materials and direct labor costs are $69 and $69 per unit, respectively. Perez expects to incur the following manufacturing overhead costs during the year 2 accounting period. Production supplies $ 6,100 Supervisor salary 172,000 Depreciation on equipment 134,000 Utilities 32,000 Rental fee on manufacturing facilities 235,050 Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units. Determine the cost of the 2,700 units of product made in January.
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.
Perez Manufacturing Company produced 2,700 units of inventory in January, Year 2. It expects to produce an additional 9,000 units during the remaining 11 months of the year. In other words, total production for year 2 is estimated to be 11,700 units. Direct materials and direct labor costs are $69 and $69 per unit, respectively. Perez expects to incur the following
| Production supplies | $ | 6,100 | |
| Supervisor salary | 172,000 | ||
| 134,000 | |||
| Utilities | 32,000 | ||
| Rental fee on manufacturing facilities | 235,050 | ||
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Combine the individual overhead costs into a cost pool and calculate a predetermined overhead rate assuming the cost driver is number of units.
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Determine the cost of the 2,700 units of product made in January.
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