Manuel Company predicts it will operate at 80% of its productive capacity. Its overhead allocation base is DLH and its standard amount per allocation base is 0.5 DLH per unit. The company reports the following for this period. Flexible Budget at 80% Capacity Actual Results Production (in units) 55,000 52,000 Overhead Variable overhead $ 302,500 Fixed overhead 55,000 Total overhead $ 357,500 $ 371,000 (1) Compute the overhead volume variance. Indicate variance as favorable or unfavorable. (2) Compute the overhead controllable variance. Indicate variance as favorable or 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.
Manuel Company predicts it will operate at 80% of its productive capacity. Its
| Flexible Budget at 80% Capacity | Actual Results | |
|---|---|---|
| Production (in units) | 55,000 | 52,000 |
| Overhead | ||
| Variable overhead | $ 302,500 | |
| Fixed overhead | 55,000 | |
| Total overhead | $ 357,500 | $ 371,000 |
(1) Compute the overhead volume variance. Indicate variance as favorable or unfavorable.
(2) Compute the overhead controllable variance. Indicate variance as favorable or unfavorable.
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