Neptune Fabrication Plant has provided you with the following information: Total manufacturing overhead costs estimated at the beginning of the year $258,000 Total direct labor costs estimated at the beginning of the year $121,000 Total direct labor hours estimated at the beginning of the year 6,000 direct labor hours Actual manufacturing overhead costs for the year $245,000 Actual direct labor costs for the year $131,000 Actual direct labor hours for the year 5,200 direct labor hours The company bases its manufacturing overhead allocation on direct labor hours. What was the unadjusted ending balance in the Manufacturing Overhead account?
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.
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Total
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$258,000
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Total direct labor costs estimated at the beginning of the year
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$121,000
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Total direct labor hours estimated at the beginning of the year
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6,000 direct labor hours
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Actual manufacturing overhead costs for the year
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$245,000
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Actual direct labor costs for the year
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$131,000
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Actual direct labor hours for the year
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5,200 direct labor hours
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Question content area bottom
Part 1
Manufacturing overhead rate = Estimated overheads / Estimated level of activity
$258,000 / 6,000 hours I.e $ 43 per labour hour
Applied overheads = $43 * 5,200 direct labor hours i.e $223,600.
Actual overheads = $ 245,000.
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