The Jewell plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows: Maintenance Rs.360,000 Inspection 750,000 The plant currently applies overhead using direct labor hours and expected capacity of 100,000 direct labor hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full manufacturing cost plus a 20% mark-up. Direct materials Rs.2,100 Direct labor 5,625 Machine hours 450 Number of inspections 4 Direct labor hours 550
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 Jewell plant has two categories of
Maintenance Rs.360,000
Inspection 750,000
The plant currently applies overhead using direct labor hours and expected capacity of 100,000 direct labor hours. The following data has been assembled for use in developing a bid for a proposed job. Bid prices are calculated as full
Direct materials Rs.2,100
Direct labor 5,625
Machine hours 450
Number of inspections 4
Direct labor hours 550
Total expected machine hours for all jobs during the year are 60,000, and the total expected number of inspections is 4,000.
Required:
- Compute the total cost of the potential job using direct labor hours to assign overhead.
Determine the bid price for the potential job.
- Compute the total cost of the job using activity-based-costing and the appropriate activity drivers.
Determine the bid price if activity-based-costing is used.
- Prepare a memorandum to the plant manager recommending a bid price for the potential job. Support your recommendation by explaining which costing method best reflect the actual cost of the job.
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