Robinwood Fixtures manufactures two products, K4 and X7. The company prepares its master budget on the basis of standard costs. The following data are for September: K4 X7 Standards Direct materials 0.75 pounds at $6.00 per pound 1 pound at $6.60 per pound Direct labor 1.25 hours at $24 per hour 1.5 hours at $30 per hour Variable overhead (per direct labor-hour) $ 19.20 $ 21.00 Fixed overhead (per month) $ 402,408 $ 477,360 Expected activity (direct labor-hours) 17,250 23,400 Actual results Direct material (purchased and used) 9,300 pounds at $5.40 per pound 14,100 pounds at $6.90 per pound Direct labor 14,700 hours at $24.30 per hour 22,200 hours at $30.60 per hour Variable overhead $ 291,060 $ 454,212 Fixed overhead $ 376,740 $ 475,200 Units produced (actual) 12,000 units 14,400 units Required: a. Prepare a variance analysis for each variable cost for each product. b. Prepare a fixed overhead variance analysis for each product.
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.
Robinwood Fixtures manufactures two products, K4 and X7. The company prepares its
| K4 | X7 | |||
|---|---|---|---|---|
| Standards | ||||
| Direct materials | 0.75 | pounds at $6.00 per pound | 1 | pound at $6.60 per pound |
| Direct labor | 1.25 | hours at $24 per hour | 1.5 | hours at $30 per hour |
| Variable |
$ 19.20 | $ 21.00 | ||
| Fixed overhead (per month) | $ 402,408 | $ 477,360 | ||
| Expected activity (direct labor-hours) | 17,250 | 23,400 | ||
| Actual results | ||||
| Direct material (purchased and used) | 9,300 | pounds at $5.40 per pound | 14,100 | pounds at $6.90 per pound |
| Direct labor | 14,700 | hours at $24.30 per hour | 22,200 | hours at $30.60 per hour |
| Variable overhead | $ 291,060 | $ 454,212 | ||
| Fixed overhead | $ 376,740 | $ 475,200 | ||
| Units produced (actual) | 12,000 | units | 14,400 | units |
Required:
a. Prepare a variance analysis for each variable cost for each product.
b. Prepare a fixed overhead variance analysis for each product.
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