Kelton Company Uses Activity-Based Costing to Allocate Variable Manufacturing Overhead

Essay

Kelton Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company identified three activities with the following information for last month.
$\begin{array}{lllll}&&\text { Standard Quantity}&\text { Actual }&\text { Actual }\\ \text { Activity } & \text { Standard Rate } & \text { per Unit Produced } &\text { Costs } & \text { Quantity }\\\hline\text { Purchase orders } & \$ 80 \text { per order } & 0.10 \text { order per unit } & \$ 141,000 & 2,000 \text { orders } \\\text { Product testing } & \$ 2 \text { per test } & 0.50 \text { minutes per } & \$ 26,000 & 10,000 \text { test } \\& \text { minute } & \text { unit } & & \text { minutes } \\\text { Indirect labor } & \$ 5 \text { per direct } & 1 \text { hour per unit } & \$ 90,000 & 16,000 \text { direct }\\&\text { labor hour }&&\text { labor hour }\end{array}$
Kelton Company produced 18,750 units last month.Prepare a variance analysis,clearly labeling each variance as favorable or unfavorable.