King Company estimated that it would operate its manufacturing facilities at 800,000 direct labour hours for the year, which served as the denominator activity in the predetermined overhead rate. The total budgeted manufacturing overhead for the year was $2,000,000, of which $1,600,000 was variable and $400,000 was fixed. The standard variable overhead rate was $2 per direct labour hour. The standard direct labour time was 3 direct labour hours per unit. The actual results for the year are presented below: Actual Finished Units 250,000 Actual Direct Labour Hours 764,000 Actual Variable Overhead $1,610,000 Actual Fixed Overhead $ 392,000 A. What was the variable overhead spending variance for the year? B. What was the variable overhead efficiency variance for the year?
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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King Company estimated that it would operate its manufacturing facilities at 800,000 direct labour hours for the year, which served as the denominator activity in the predetermined
|
Actual Finished Units |
250,000 |
|
Actual Direct Labour Hours |
764,000 |
|
Actual Variable Overhead |
$1,610,000 |
|
Actual Fixed Overhead |
$ 392,000 |
|
A. |
What was the variable overhead spending variance for the year? |
|
B. |
What was the variable overhead efficiency variance for the year? |
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