The production department of Raredon Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units to be produced . . . . . . 24,000 28,000 26,000 22,000 Each unit requires 1.4 direct labour-hours, and direct labour-hour workers are paid $21.00 per hour. In addition, the variable manufacturing overhead rate is $1.30 per direct labour-hour. The fixed manufacturing overhead is $160,000 per quarter. The only noncash element of manufacturing overhead is amortization, which is $44,000 per quarter. Required: Prepare the company’s direct labour budget for the upcoming fiscal year, assuming that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units. Prepare the company’s manufacturing overhead budget.
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 production department of Raredon Corporation has submitted the following
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced . . . . . . 24,000 28,000 26,000 22,000
Each unit requires 1.4 direct labour-hours, and direct labour-hour workers are paid $21.00 per hour.
In addition, the variable manufacturing overhead rate is $1.30 per direct labour-hour. The fixed manufacturing overhead is $160,000 per quarter. The only noncash element of manufacturing overhead is amortization, which is $44,000 per quarter.
Required:
- Prepare the company’s direct labour budget for the upcoming fiscal year, assuming that the direct labour workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units.
- Prepare the company’s manufacturing overhead budget.
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