Solexx Corporation allocates its service department overhead costs to producing departments. This information is for the month of June: Service Departments Maintenance Utilities Overhead costs incurred $ 162,000 $ 684,000 Service provided to departments Maintenance — 5% Utilities 10% — Producing—A 20 40 Producing—B 70 55 Totals 100% 100%
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.
Solexx Corporation allocates its service department
| Service Departments | ||
|---|---|---|
| Maintenance | Utilities | |
| Overhead costs incurred | $ 162,000 | $ 684,000 |
| Service provided to departments | ||
| Maintenance | — | 5% |
| Utilities | 10% | — |
| Producing—A | 20 | 40 |
| Producing—B | 70 | 55 |
| Totals | 100% | 100% |
Required:
What is the amount of maintenance and utilities department costs distributed to producing departments A and B for June using (1) the direct method, (2) the step method (maintenance department first), and (3) the reciprocal method?
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