Resource Number of Moves Total Cost Forklift depreciation: Low 6,500 $ 1,800 High Indirect labor: 20,000 1,800 $ 74,250 135,000 Low 6,500 20,000 High Fuel and oil for forklift: 6,500 20,000 $ 4,940 15,200 Low High
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.
High-Low Method, Cost Formulas
The controller of the South Charleston plant of Ravinia, Inc., monitored activities associated with materials handling costs. The high and low levels of resource usage occurred in September
and March for three different resources associated with materials handling. The number of moves is the driver. The total costs of the three resources and the activity output, as measured
by moves for the two different levels, are presented as follows:
Required:
1. Determine the cost behavior formula of each resource. Use the high-low method to assess
the fixed and variable components.
2. Using your knowledge of cost behavior, predict the cost of each item for an activity output
level of 9,000 moves.
3. Construct a cost formula that can be used to predict the total cost of the three resources
combined. Using this formula, predict the total materials handling cost if activity output is 9,000 moves. In general, when can cost formulas be combined to form a single cost
formula?
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