Milar Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 7.7 pounds $ 4.00 per pound Direct labor 0.1 hours $ 20.00 per hour Variable overhead 0.1 hours $ 4.00 per hour In January the company produced 2,000 units using 16,060 pounds of the direct material and 210 direct labor-hours. During the month, the company purchased 16,900 pounds of the direct material at a cost of $65,910. The actual direct labor cost was $4,473 and the actual variable overhead cost was $756. The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The variable overhead rate variance for January is: $84 U $84 F $80 U $80 F
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.
Milar Corporation makes a product with the following standard costs:
| Standard Quantity or Hours | Standard Price or Rate | |||||
| Direct materials | 7.7 | pounds | $ | 4.00 | per pound | |
| Direct labor | 0.1 | hours | $ | 20.00 | per hour | |
| Variable |
0.1 | hours | $ | 4.00 | per hour |
In January the company produced 2,000 units using 16,060 pounds of the direct material and 210 direct labor-hours. During the month, the company purchased 16,900 pounds of the direct material at a cost of $65,910. The actual direct labor cost was $4,473 and the actual variable overhead cost was $756.
The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.
The variable overhead rate variance for January is:
|
$84 U |
||
|
$84 F |
||
|
$80 U |
||
|
$80 F |
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