Standard Costing and Variance Analysis at Caterpillar Inc.

Requirements:

1. Develop standard costs for Caterpillar Inc.'s heavy machinery models, incorporating direct materials, direct labor, and variable overhead costs.

Cost Element	Model A ($)	Model B ($)
Direct Materials	15,000	12,000
Direct Labor	7,500	6,000
Variable Overhead	3,000	2,500

2. Calculate the labor and materials price and efficiency variances for both models based on actual and standard costs.

Model	Labor Variance ($)	Materials Variance ($)
Model A	4,000 favorable	2,000 unfavorable
Model B	3,500 favorable	1,500 favorable

3. Perform a comprehensive performance evaluation by comparing actual costs against standard costs for production volumes.
4. Recommend operational improvements and cost control measures based on the variance analysis to enhance profitability.