The cost formula for the maintenance department of Rainbow Ltd. is $19,400 per month plus $7.70 per machine hour used by the production department. Required: a. Calculate the maintenance cost that would be budgeted for a month in which 6,700 machine hours are planned to be used. b. Prepare an appropriate performance report for the maintenance department assuming that 7,060 machine hours were actually used in the month of May and that the total maintenance cost incurred was $68,940. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
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.
The cost formula for the maintenance department of Rainbow Ltd. is $19,400 per month plus $7.70 per machine hour used by the production department.
Required:
a. Calculate the maintenance cost that would be budgeted for a month in which 6,700 machine hours are planned to be used.
b. Prepare an appropriate performance report for the maintenance department assuming that 7,060 machine hours were actually used in the month of May and that the total maintenance cost incurred was $68,940. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
