Welding Assembly Finishing Estimated overhead $220,000 $ 62,000 $150,000 Direct labor hours 4,500 10,000 6,000 Direct labor cost $ 90,000 $150,000 $120,000 Machine hours 5,000 1,000 2,000 Job 1 Job 2 Direct materials $6,725 $9.340 Direct labor cost $1,800 $3,100 Direct labor hours: Welding Assembly Finishing Number of machine hours: 20 10 60 20 20 70 Welding Assembly Finishing 50 50 60 25 90 125
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.
Folsom Company manufactures specialty tools to customer order. There are three producing
departments. Departmental information on budgeted
for the coming year is as follows:
Currently, overhead is applied on the basis of machine hours using a plantwide rate.
However, Janine, the controller, has been wondering whether it might be worthwhile to use
departmental overhead rates. She has analyzed the overhead costs and drivers for the various departments and decided that Welding and Finishing should base their overhead rates on machine
hours and that Assembly should base its overhead rate on direct labor hours.
Janine has been asked to prepare bids for two jobs with the following information:
The typical bid price includes a 35% markup over full
rates to the nearest cent. Round all bid prices to the nearest dollar.
Required:
1. Calculate a plantwide rate for Folsom Company based on machine hours. What is the bid
price of each job using this rate?
2. Calculate departmental overhead rates for the producing departments. What is the bid
price of each job using these rates?
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