The following table presents the budgeted overhead costs for the dyeing and weaving cost pools: Dyeing (based on 1,440,000 MH) Weaving (based on 12,400,000 DMLH) Variable costs $15,400,000 Indirect materials Maintenance 6,560,000 5,540,000 7,550,000 Utilities 2,890,000 Fixed costs 347,000 Indirect labor 1,700,000 Depreciation 2,100,000 274,000 Other 723,000 5,816,000 $31,620,000 $17,280,000 Total budgeted costs
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.
Xander Manufacturing Company manufactures blue rugs, using wool and dye as direct materials. One rug is budgeted to use 36 skeins of wool at a cost of $2 per skein and 0.8 gallons of dye at a cost of $6 per gallon. All other materials are indirect. At the beginning of the year Xander has an inventory of 458,000 skeins of wool at a cost of $961,800 and 4,000 gallons of dye at a cost of $23,680. Target ending inventory of wool and dye is zero. Xander uses the FIFO inventory cost-flow method. Xander blue rugs are very popular and demand is high, but because of capacity constraints the firm will produce only 200,000 blue rugs per year. The budgeted selling price is $2,000 each. There are no rugs in beginning inventory. Target ending inventory of rugs is also zero. Xander makes rugs by hand, but uses a machine to dye the wool. Thus,
Q.Prepare a direct materials usage budget in both units and dollars
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