Bellingham Company produced 3,600 units of product that required 8.5 standard direct labor hou direct labor hour. The actual variable factory overhead was $151,530. Determine the variable fac negative number using a minus sign and an unfavorable variance as a positive number.
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.
Solution:
To calculate the variable factory overheads controllable variance, standard hours for actual production is required.
The standard price is given as $5.10 per direct labor hour.
Therefore, total standard cost for actual production per direct labor is calculated by multiplying the standard hours for actual production which requires 8.5 direct labor hours per unit with standard price.
Standard hours for actual production = 3,600 units * 8.5 hours per unit
= 30,600 direct labor hours
Standard Cost for standard hours = 30,600 hours * $5.10
= $156,060
Actual variable factory overhead is given as $151,530.
The difference between the above two would be the variable factory overhead controllable variance.
Variable factory overhead controllable variance is -4,530 (favorable) [$156,060 -$151,530].
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