Cari’s Manufacturing Company manufactures Tye Dye Special Garment (SG), using cotton and dye as direct materials. One SG is budgeted to use 34 parts of cotton at a cost of $2 per part and 0.8 gallons of dye at a cost of $7 per gallon. All other materials are indirect. At the beginning of the year Cari’s has an inventory of 450,000 parts of cotton at a cost of $861,800 and 4,000 gallons of dye at a cost of $24,680. Target ending inventory of cotton and dye is zero. Cari’s uses the FIFO inventory cost flow method. Cari’s SG are very popular and demand is high, but because of capacity constraints the firm will produce only 200,000 SG per year. The budgeted selling price is $2,100 each. There are no SGs in beginning inventory. Target ending inventory of SG is also zero. Cari’s makes SG by hand, but uses a machine to dye the cotton. Thus, overhead costs are accumulated in two cost pools—one for weaving and the other for dyeing. Weaving overhead is allocated to products based on direct manufacturing labor-hours (DMLH). Dyeing overhead is allocated to products based on machine-hours (MH). There is no direct manufacturing labor cost for dyeing. Cari’s budgets 60 direct manufacturing labor hours to weave a SG at a budgeted rate of $14 per hour. It budgets 0.2 machine-hours to dye each part in the dyeing process. The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: Dyeing Weaving (based on 1,400,000 MH) (based on 12,000,000 DMLH) Variable costs Indirect materials $ 0 $15,400,000 Maintenance 6,560,000 5,540,000 Utilities 7,550,000 2,890,000 Fixed costs Indirect labor 347,000 1,700,000 Depreciation 2,100,000 274,000 Other 723,000 5,816,000 Total budgeted costs $17,280,000 $31,620,000 . Prepare a revenue budget for SG for the years, assuming Cari sells 200,000 SGs and 185,000 SGs.
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.
Cari’s Manufacturing Company manufactures Tye Dye Special Garment (SG), using cotton and dye as direct materials. One SG is budgeted to use 34 parts of cotton at a cost of $2 per part and 0.8 gallons of dye at a cost of $7 per gallon. All other materials are indirect. At the beginning of the year Cari’s has an inventory of 450,000 parts of cotton at a cost of $861,800 and 4,000 gallons of dye at a cost of $24,680. Target ending inventory of cotton and dye is zero. Cari’s uses the FIFO inventory cost flow method. Cari’s SG are very popular and demand is high, but because of capacity constraints the firm will produce only 200,000 SG per year. The budgeted selling price is $2,100 each. There are no SGs in beginning inventory. Target ending inventory of SG is also zero. Cari’s makes SG by hand, but uses a machine to dye the cotton. Thus,
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