Edney Company employs standard absorption system for product costing. The standard cost of its product is as follows: Raw materials ........................................................P14.50 Direct labor (2 DLH x P8)..................................... 16.00 Manufacturing overhead (2 DLH x P11) .........22.00 The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Edney planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is Variable................... P3,600,000 Fixed.......................... 3,000,000 During November, Edney produced 26,000 units. Edney used 53,500 direct labor hours in November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000 fixed and P315,000 variable. The total manufacturing overhead applied during November was P572,000. What are the variable manufacturing overhead variances for November?
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.
Edney Company employs standard absorption system for product costing. The
Raw materials ........................................................P14.50
Direct labor (2 DLH x P8)..................................... 16.00
Manufacturing
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Edney planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is
Variable................... P3,600,000
Fixed.......................... 3,000,000
During November, Edney produced 26,000 units. Edney used 53,500 direct labor hours in November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000 fixed and P315,000 variable. The total manufacturing overhead applied during November was P572,000.
What are the variable manufacturing overhead variances for November?
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