FUN Inc. has a fully automated production facility in which almost 97 percent of averhead costs are driven by machine hours. As the company's cost accountant, you have computed the following overhead variances for May: Variable overhead spending variance $34,000 F Variable overhead efficiency variance 41,200 F Fixed overhead spending variance 28,000 U Fixed overhead volume variance 20,000 U The company's president in concerned about the variance amounts and has asked you to show her how the variances were computed and to answer several questions. Budgeted fixed averhead for the month is $1,000,000; the predetermined variable and fixed overhead rates are, respectively, $20 and $40 per machine hour. Bugdeted capacity is 20,000 units. d. What is the total spending variance? e. What additional information about the manufacturing overhead variances is gained by inserting detailed computations into the variable and fixed manufacturing overhead variance analysis? f. How would the overhead variances be closed if the three-variance approach were used and the variances are considered insignificant?
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.
FUN Inc. has a fully automated production facility in which almost 97 percent of averhead costs are driven by machine hours. As the company's cost accountant, you have computed the following
Variable overhead spending variance $34,000 F
Variable overhead efficiency variance 41,200 F
Fixed overhead spending variance 28,000 U
Fixed overhead volume variance 20,000 U
The company's president in concerned about the variance amounts and has asked you to show her how the variances were computed and to answer several questions. Budgeted fixed averhead for the month is $1,000,000; the predetermined variable and fixed overhead rates are, respectively, $20 and $40 per machine hour. Bugdeted capacity is 20,000 units.
d. What is the total spending variance?
e. What additional information about the manufacturing overhead variances is gained by inserting detailed computations into the variable and fixed manufacturing overhead
f. How would the overhead variances be closed if the three-variance approach were used and the variances are considered insignificant?
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