Commodore Company uses a standard cost system for its production process and applies overhead based on direct labor hours. The following information is available for September when Commodore produced 5,000 units: Standard: DLH per unit Variable overhead per DLH Fixed overhead per DLH Budgeted variable overhead Budgeted fixed overhead Actual: Direct labor hours Variable overhead Fixed overhead 3.00 $1.80 $3.25 $27,250 $49,500 16,000 $31,325 $49,750
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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Required:Using the three-variance approach,
a.what is spending variance
b.what is efficiency variance
c.what is volume variance
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