Gitano Products operates a job-order casting system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased) Its predetermined overhead rate was based on a cost formula that estimated $113, 100 of manufacturing overhead for an estimated allocation base of $87, 000 direct material dollars to be used in production. The company has provided the following data for the just completed year: Purchase of raw materials $ 133, 000 Direct labor cost $ 83,000 Manufacturing overhead costs: Indirect labor S 105,800 Property taxes S 8,500 Depreciation of equipment $ 18,000 Maintenance $ 16,000 Insurance $ 7,000 Rent, building $ 38,000 Beginning Ending Raw Materials $26,000 $ 14,000 Work in Process $ 48,000 $ 37,000 Finished Goods $ 73,000 $ 61,000 Required: 1. Compute the predetermined overhead rate for the year
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.
Gitano Products operates a job-order casting system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased) Its predetermined overhead rate was based on a cost formula that estimated $113, 100 of manufacturing overhead for an estimated allocation base of $87, 000 direct material dollars to be used in production. The company has provided the following data for the just completed year: Purchase of raw materials $ 133, 000 Direct labor
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