All−Star, Inc. uses a standard cost system and provides the following information. Static budget variable overhead $1,200 Static budget fixed overhead $1,600 Static budget direct labor hours 800 hours Static budget number of units 400 units Standard direct labor hours 2 hours per unit All−Star allocates manufacturing overhead to production based on standard direct labor hours. All−Star reported the following actual results for 2018: actual number of units produced, 1,000; actual variable overhead, $3,800; actual fixed overhead, $3,400; actual direct labor hours, 1,500. 1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances. 2. Explain why the variances are favorable or unfavorable. Requirement 1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances.
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.
All−Star, Inc. uses a
|
Static budget variable |
$1,200 |
|
Static budget fixed overhead |
$1,600 |
|
Static budget direct labor hours |
800 hours |
|
Static budget number of units |
400 units |
|
Standard direct labor hours |
2 hours per unit |
All−Star allocates manufacturing overhead to production based on standard direct labor hours.
All−Star reported the following actual results for 2018:
actual number of units produced,
1,000;
actual variable overhead,
$3,800;
actual fixed overhead,
$3,400;
actual direct labor hours,
1,500.
|
1. |
Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances. |
|
2. |
Explain why the variances are favorable or unfavorable. |
Requirement 1. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances.
Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity; VOH = variable overhead.)
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