1. Compute the total variable overhead variance and identify it as favorable or unfavorable. Note: Indicate the effect of the variance by selecting favorable, unfavorable, or no variance. 2. Compute the total fixed overhead variance and identify it as favorable or unfavorable. Note: Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.
1. Compute the total variable overhead variance and identify it as favorable or unfavorable. Note: Indicate the effect of the variance by selecting favorable, unfavorable, or no variance. 2. Compute the total fixed overhead variance and identify it as favorable or unfavorable. Note: Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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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Transcribed Image Text:Sedona Company set the following standard costs for one unit of its product for this year.
Direct material (20 pounds @ $2.50 per pound)
Direct labor (10 hours @ $22.00 per DLH)
Variable overhead (10 hours @ $4.00 per DLH)
Fixed overhead (10 hours @ $1.60 per DLH)
Standard cost per unit
$ 50.00
220.00
40.00
16.00
$ 326.00
The $5.60 ($4.00 + $1.60) total overhead rate per direct labor hour (DLH) is based on a predicted activity level of 37,500
units, which is 75% of the factory's capacity of 50,000 units per month. The following monthly flexible budget information
is available.
Flexible Budget
Budgeted production (units)
Budgeted direct labor (standard hours)
Budgeted overhead
Variable overhead
Fixed overhead
Total overhead
Operating Levels (% of capacity)
70%
35,000
350,000
$ 1,400,000
600,000
$ 2,000,000
75%
37,500
375,000
$ 1,500,000
600,000
$ 2,100,000
80%
40,000
400,000
$ 1,600,000
600,000
$ 2,200,000
During the current month, the company operated at 70% of capacity, direct labor of 340,000 hours were used, and the
following actual overhead costs were incurred.
Actual variable overhead
Actual fixed overhead
Actual total overhead
$ 1,375,000
628,600
$ 2,003,600
1. Compute the total variable overhead variance and identify it as favorable or unfavorable.
Note: Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.
2. Compute the total fixed overhead variance and identify it as favorable or unfavorable.
Note: Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.
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