What is the predetermined overhead rate for the year?Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased). Its predetermined overhead rate was based on a cost formula that estimated $120,400 of manufacturing overhead for an estimated allocation base of $86,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:Purchase of raw materials $ 133,000Direct labor cost $ 82,000Manufacturing overhead costs:Indirect labor $ 118,600Property taxes $ 8,000Depreciation of equipment $ 18,000Maintenance $ 15,000Insurance $ 9,700Rent, building $ 39,000Beginning EndingRaw Materials $ 26,000 $ 13,000Work in Process $ 44,000 $ 40,000Finished Goods $ 71,000 $ 60,000
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.
What is the predetermined
Gitano Products operates a
Purchase of raw materials $ 133,000
Direct labor cost $ 82,000
Manufacturing overhead costs:
Indirect labor $ 118,600
Property taxes $ 8,000
Depreciation of equipment $ 18,000
Maintenance $ 15,000
Insurance $ 9,700
Rent, building $ 39,000
Beginning Ending
Raw Materials $ 26,000 $ 13,000
Work in Process $ 44,000 $ 40,000
Finished Goods $ 71,000 $ 60,000
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