Information on Reng Company’s overhead costs for January production activity is as follows: Budgeted fixed overhead P75,000 Standard fixed overhead rate per direct-labor hour P3 Standard variable overhead rate per direct-labor hour P6 Standard direct-labor hours allowed for actual production 24,000 Actual total overhead incurred P220,000 Reng has a standard absorption and flexible budgeting system and uses the two-variance method (two-way analysis) for overhead variance. The volume (denominator) variance for January is: P3,000 unfavorable P3,000 favorable P4,000 favorable P4,000 unfavorable
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.
Information on Reng Company’s
Budgeted fixed overhead P75,000
Standard fixed overhead rate per direct-labor hour P3
Standard variable overhead rate per direct-labor hour P6
Standard direct-labor hours allowed for actual production 24,000
Actual total overhead incurred P220,000
Reng has a standard absorption and flexible budgeting system and uses the two-variance method (two-way
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