Garden Yeti manufactures garden sculptures. Each sculpture requires 8 pounds of direct materials at a cost of $3 per pound and 0.4 direct labor hour at a rate of $20 per hour. Variable overhead is budgeted at a rate of $3 per direct labor hour. Budgeted fixed overhead is $3,100 per month. The company’s policy is to maintain direct materials inventory equal to 40% of the next month’s direct materials requirement. At the end of February the company had 11,200 pounds of direct materials in inventory. The company’s production budget reports the following. Production Budget March April May Units to produce 3,500 4,800 5,000 (1) Prepare direct materials budgets for March and April. (2) Prepare direct labor budgets for March and April. (3) Prepare factory overhead budgets for March and April.
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.
Garden Yeti manufactures garden sculptures. Each sculpture requires 8 pounds of direct materials at a cost of $3 per pound and 0.4 direct labor hour at a rate of $20 per hour. Variable
| Production Budget | March | April | May |
|---|---|---|---|
| Units to produce | 3,500 | 4,800 | 5,000 |
(1) Prepare direct materials budgets for March and April.
(2) Prepare direct labor budgets for March and April.
(3) Prepare factory overhead budgets for March and April.
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