North-South Pole Company produces two products, a jacket suitable for adventure-seeking people (Spirit) and a jacket for less-adventurous people (Companion). Production and Sales per year 20,000 units (Spirit) & 5,000 units (Companion) Direct labour 3.5 hours per unit (both) Direct labour cost $32.00 per hour Estimated annual manufacturing overhead $285,000 Direct materials $180 per unit (both) Breakdown of overhead rates Activity Cost Pools Estimated Overhead Expected Use of Cost Drivers per Activity Activity Based Overhead Rates Machine set-up $ 40,000 200 $? per set-up Sewing $135,000 37,500 machine hours (MH) $? per MH Inspection $ 25,000 1000 $? per inspection The breakdown between the two products for assigning overheads are as follows: Product No. of Set-ups Sewing Inspections Spirit 105 23,500 500 Companion 95 14,000 500 Required: From the following information, calculate the unit costs for “Spirit” and “Companion” using both the traditional method of costing (i.e. manufacturing overhead rate is based on units produced), and Activity based Costing.
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.
North-South Pole Company produces two products, a jacket suitable for adventure-seeking people (Spirit) and a jacket for less-adventurous people (Companion).
Production and Sales per year 20,000 units (Spirit) & 5,000 units (Companion) Direct labour 3.5 hours per unit (both)
Direct labour cost $32.00 per hour Estimated annual manufacturing overhead $285,000
Direct materials $180 per unit (both) Breakdown of overhead rates
|
Activity Cost Pools |
Estimated Overhead |
Expected Use of Cost Drivers per Activity |
Activity Based Overhead Rates |
|
Machine set-up |
$ 40,000 |
200 |
$? per set-up |
|
Sewing |
$135,000 |
37,500 machine hours (MH) |
$? per MH |
|
Inspection |
$ 25,000 |
1000 |
$? per inspection |
The breakdown between the two products for assigning
|
Product |
No. of Set-ups |
Sewing |
Inspections |
|
Spirit |
105 |
23,500 |
500 |
|
Companion |
95 |
14,000 |
500 |
Required:
From the following information, calculate the unit costs for “Spirit” and “Companion” using both the traditional method of costing (i.e. manufacturing overhead rate is based on units produced), and Activity based Costing.
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