Overhead Variances At the beginning of the year, Lopez Company had the following standard cost sheet for one of its chemical products: Direct materials (4 lbs. @ $2.80) $11.20 Direct labor (2 hrs. @ $18.00) 36.00 FOH (2 hrs. @ $5.20) 10.40 VOH (2 hrs. @ $0.70) 1.40 Standard cost per unit $59.00 Lopez computes its overhead rates using practical volume, which is 80,000 units. The actual results for the year are as follows: (a) Units produced: 79,600; (b) Direct labor: 158,900 hours at $18.10; (c) FOH: $831,000; and (d) VOH: $112,400. Required: 1. Compute the variable overhead spending and efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable. Spending variance $fill in the blank 1 Unfavorable Efficiency variance $fill in the blank 3 Favorable 2. Compute the fixed overhead spending and volume variances. Enter amounts as positive numbers and select Favorable or Unfavorable. Spending variance $fill in the blank 5 Favorable Volume variance $fill in the blank 7 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.
At the beginning of the year, Lopez Company had the following
| Direct materials (4 lbs. @ $2.80) | $11.20 | ||
| Direct labor (2 hrs. @ $18.00) | 36.00 | ||
| FOH (2 hrs. @ $5.20) | 10.40 | ||
| VOH (2 hrs. @ $0.70) | 1.40 | ||
| Standard cost per unit | $59.00 |
Lopez computes its overhead rates using practical volume, which is 80,000 units. The actual results for the year are as follows: (a) Units produced: 79,600; (b) Direct labor: 158,900 hours at $18.10; (c) FOH: $831,000; and (d) VOH: $112,400.
Required:
1. Compute the variable overhead spending and efficiency variances. Enter amounts as positive numbers and select Favorable or Unfavorable.
| Spending variance | $fill in the blank 1 | Unfavorable | |
| Efficiency variance | $fill in the blank 3 | Favorable |
2. Compute the fixed overhead spending and volume variances. Enter amounts as positive numbers and select Favorable or Unfavorable.
| Spending variance | $fill in the blank 5 | Favorable | |
| Volume variance | $fill in the blank 7 | Unfavorable |
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