Ryan Corporation manufactures auto steering systems. Prime cost and machine time estimates for one unit of the product for the year follow: Direct materials $ 400 Direct labor ($32/hour) $ 800 Machine hours 20
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.
Ryan Corporation manufactures auto steering systems. Prime cost and machine time estimates for one unit of the product for the year follow:
| Direct materials | $ | 400 | |
| Direct labor ($32/hour) | $ | 800 | |
| Machine hours | 20 | ||
This product requires 15 hours of direct labor in Department A and 10 hours in Department B. Also, it requires 5 machine hours in Department A and 15 machine hours in Department B. Using output as the activity, the
| A | B | ||||||
| Variable cost | $ | 450,000 | $ | 280,000 | |||
| Fixed cost | 114,000 | 183,000 | |||||
Management expects the firm to produce 1,000 units during the year.
Required:
1. Assume the total actual overhead base used was equal to the estimated base for the 1,000 units produced. Assume that factory overhead was applied on the basis of direct labor hours. Compute the predetermined plantwide factory overhead rate.
2. If factory overhead were applied on the basis of machine hours, what would be the plantwide overhead rate?
3. If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2?
5. Compute the departmental overhead rate and amount of applied overhead for Department A using direct labor hours as the allocation base and for Department B using machine hours as the allocation base.
Assume the total actual overhead base used was equal to the estimated base for the 1,000 units produced. Assume that factory overhead was applied on the basis of direct labor hours. Compute the predetermined plantwide factory overhead rate. (Round your answer to 2 decimal places.)
If factory overhead were applied on the basis of machine hours, what would be the plantwide overhead rate?
If the company produced 1,000 units during the year, what was the total amount of applied factory overhead in each department in requirements 1 and 2?
Compute the departmental overhead rate and amount of applied overhead for Department A using direct labor hours as the allocation base and for Department B using machine hours as the allocation base. (Round "Predetermined Overhead Rate" answer to 2 decimal places.)
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