Carpenter Company uses standard costing. The company has a manufacturing plant in Georgia. Standard labor-hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.50 per direct labor-hour. Fixed overhead for the Georgia plant is budgeted at $1,800,000 for the year. Firm management has always used variance analysis as a performance measure for the plant. Tom Saban has just been hired as a new controller for Carpenter Company. Tom is good friends with the Georgia plant manager and wants him to get a favorable review. Tom decides to underestimate production, and budgets annual output of 1,200,000 units. His explanation for this is that the economy is slowing and sales are likely to decrease. At the end of the year, the plant reported the following actual results: output of 1,500,000 using 760,000 labor-hours in total, at a cost of $2,700,000 in variable overhead and $1,850,000 in fixed overhead. Q.Summarize the fixed overhead variance based on both the projected level of production of 1,200,000 units and 1,500,000 units.
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.
Carpenter Company uses
Q.Summarize the fixed overhead variance based on both the projected level of production of 1,200,000 units and 1,500,000 units.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
