Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month Total Overhead Machine Hours Jan. $ 6,288 1,980 Feb. 6,460 2,090 Mar. 5,987 1,745 Apr. 5,559 1,560 May 6,032 1,865 June 6,341 2,012 Using the high-low method, total monthly fixed overhead cost is calculated to be:
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.
Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must
| Month | Total Overhead | Machine Hours | ||||
| Jan. | $ | 6,288 | 1,980 | |||
| Feb. | 6,460 | 2,090 | ||||
| Mar. | 5,987 | 1,745 | ||||
| Apr. | 5,559 | 1,560 | ||||
| May | 6,032 | 1,865 | ||||
| June | 6,341 | 2,012 | ||||
Using the high-low method, total monthly fixed overhead cost is calculated to be:
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