of normal capacity of 7,700 hours. Variable costs: Indirect factory wages $22,330 Power and light 15,862 Indirect materials 13,552 Total variable cost $51,744 Fixed costs: Supervisory salaries $
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.
Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following
| Variable costs: | ||
| Indirect factory wages | $22,330 | |
| Power and light | 15,862 | |
| Indirect materials | 13,552 | |
| Total variable cost | $51,744 | |
| Fixed costs: | ||
| Supervisory salaries | $14,700 | |
| |
37,710 | |
| Insurance and property taxes | 11,500 | |
| Total fixed cost | 63,910 | |
| Total factory overhead cost | $115,654 |
During May, the department operated at 8,200 standard hours. The factory overhead costs incurred were indirect factory wages, $24,020; power and light, $16,590; indirect materials, $14,700; supervisory salaries, $14,700; depreciation of plant and equipment, $37,710; and insurance and property taxes, $11,500.
Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 8,200 hours. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your per unit computations to the nearest cent, if required. If an amount box does not require an entry, leave it blank.
Tiger Equipment Inc.Factory Overhead Cost Variance Report—Welding DepartmentFor the Month Ended May 31
| Normal capacity for the month 7,700 hrs. | ||||
| Actual production for the month 8,200 hrs. | ||||
| Actual | Unfavorable Variances | Favorable Variances | ||
| Variable costs: | ||||
| Indirect factory wages | $fill in the blank 1 | $fill in the blank 2 | $fill in the blank 3 | $fill in the blank 4 |
| Power and light | fill in the blank 5 | fill in the blank 6 | fill in the blank 7 | fill in the blank 8 |
| Indirect materials | fill in the blank 9 | fill in the blank 10 | fill in the blank 11 | fill in the blank 12 |
| Total variable cost | $fill in the blank 13 | $fill in the blank 14 | ||
| Fixed costs: | ||||
| Supervisory salaries | $fill in the blank 15 | $fill in the blank 16 | ||
| Depreciation of plant and equipment | fill in the blank 17 | fill in the blank 18 | ||
| Insurance and property taxes | fill in the blank 19 | fill in the blank 20 | ||
| Total fixed cost | $fill in the blank 21 | $fill in the blank 22 | ||
| Total factory overhead cost | $fill in the blank 23 | $fill in the blank 24 | ||
| Total controllable variances | $fill in the blank 25 | $fill in the blank 26 | ||
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blank | blank | $- Select - | |
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| Excess hours used over normal at the standard rate for fixed factory overhead | fill in the blank 30 | |||
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$- Select - |
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