The fixed costs of operating the Bunatta Corp. are $4,800,000 annually. Variable costs are incurred at the rate of $25 per maintenance-hour. On average, the company incurs 38,000 maintenance-hours per year. Budgeted and actual hours per user for 2019 are as follows: Assume that budgeted maintenance-hours are used to calculate the allocation rates. Using a single-rate allocation and budgeted usage, how much will each department be allocated? Using a dual-rate allocation with fixed costs allocated according to budgeted hours and variable costs allocated to actual hours, how much overhead will each department be allocated?
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.
The fixed costs of operating the Bunatta Corp. are $4,800,000 annually. Variable costs are incurred at the rate of $25 per maintenance-hour. On average, the company incurs 38,000 maintenance-hours per year. Budgeted and actual hours per user for 2019 are as follows:
Assume that budgeted maintenance-hours are used to calculate the allocation rates.
Using a single-rate allocation and budgeted usage, how much will each department be allocated?
Using a dual-rate allocation with fixed costs allocated according to budgeted hours and variable costs allocated to actual hours, how much
In a single rate allocation method, all the expected fixed and variable costs are pooled; and thereafter, such cost is divided by the allocation base.
In a dual rate allocation method, fixed cost is divided by the budgeted allocation base (labor hour) to compute the fixed cost per allocation base (labor hour); whereas, variable cost per hour is directly applied to actual number of hours.
Step by step
Solved in 2 steps with 2 images
