The November monthly factory overhead cost budget for Brass Ltd. at normal capacity of 10,000 units or 5,000 direct labor hours follows: Variable: Power $ 6,000 Supplies 12,000 Maintenance 15,000 Total variable factory overhead 33,000 Fixed: Supervisory salaries 24,000 Depreciation of buildings and equipment 8,000 Lights and heat 6,000 Property tax and insurance 22,000 Total fixed factory overhead 60,000 Total factory overhead $93,000 (1) Prepare a flexible budget for 80%, 100% and 120% of normal capacity. (2) Determine the rate for application of factory overhead to work in process at each level of volume in relation to both units and direct labor hours.
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.
| Variable: | |
| Power |
$ 6,000 |
| Supplies |
12,000 |
| Maintenance |
15,000 |
| Total variable factory overhead |
33,000 |
| Fixed: | |
| Supervisory salaries |
24,000 |
| |
8,000 |
| Lights and heat |
6,000 |
| Property tax and insurance |
22,000 |
| Total fixed factory overhead |
60,000 |
| Total factory overhead |
$93,000 |
(1) Prepare a flexible budget for 80%, 100% and 120% of normal capacity.
(2) Determine the rate for application of factory overhead to work in process at each level of volume in relation to both units and direct labor hours.
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