Flandro Company uses a standard cost system and sets predetermined overhead rates on the basis of directlabor-hours. The following data are taken from the company’s budget for the current year:Denominator activity (direct labor-hours) ............... 5,000Variable manufacturing overhead cost .................. $25,000Fixed manufacturing overhead cost ...................... $59,000The standard cost card for the company’s only product is given below:Direct materials, 3 yards at $4.40 per yard ........................... $13.20Direct labor, 1 hour at $12 per hour ...................................... 12.00Manufacturing overhead, 140% of direct labor cost ............. 16.80Standard cost per unit .......................................................... $42.00During the year, the company produced 6,000 units of product and incurred the following costs:Materials purchased, 24,000 yards at $4.80 per yard ...... $115,200Materials used in production (in yards) ............................. 18,500Direct labor cost incurred, 5,800 hours at $13 per hour ... $75,400Variable manufacturing overhead cost incurred ............... $29,580Fixed manufacturing overhead cost incurred ................... $60,400Required:1. Redo the standard cost card in a clearer, more usable format by detailing the variable and fixedoverhead cost elements.2. Prepare an analysis of the variances for direct materials and direct labor for the year.3. Prepare an analysis of the variances for variable and fixed overhead for the year.4. What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is thevolume variance a controllable variance from a spending point of view? Explain.
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.
Flandro Company uses a
labor-hours. The following data are taken from the company’s budget for the current year:
Denominator activity (direct labor-hours) ............... 5,000
Variable
Fixed manufacturing overhead cost ...................... $59,000
The standard cost card for the company’s only product is given below:
Direct materials, 3 yards at $4.40 per yard ........................... $13.20
Direct labor, 1 hour at $12 per hour ...................................... 12.00
Manufacturing overhead, 140% of direct labor cost ............. 16.80
Standard cost per unit .......................................................... $42.00
During the year, the company produced 6,000 units of product and incurred the following costs:
Materials purchased, 24,000 yards at $4.80 per yard ...... $115,200
Materials used in production (in yards) ............................. 18,500
Direct labor cost incurred, 5,800 hours at $13 per hour ... $75,400
Variable manufacturing overhead cost incurred ............... $29,580
Fixed manufacturing overhead cost incurred ................... $60,400
Required:
1. Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed
overhead cost elements.
2. Prepare an analysis of the variances for direct materials and direct labor for the year.
3. Prepare an analysis of the variances for variable and fixed overhead for the year.
4. What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is the
volume variance a controllable variance from a spending point of view? Explain.
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