BatCo makes baseball bats. Each bat requires 1.00 pounds of wood at $18 per pound and 0.30 direct labor hour at $20 per hour. Overhead is assigned at the rate of $40 per direct labor hour. Assume the actual cost to manufacture 130 bats is $5,460.00. Compute the total cost variance and identify it as favorable or unfavorable.
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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