Patel and Sons Inc. uses a standard cost system to apply factory overhead costs to units produced. Practical capacity for the plant is defined as 50,700 machine hours per year, which represents 25,350 units of output. Annual budgeted fixed factory overhead costs are $253,500 and the budgeted variable factory overhead cost rate is $2.20 per unit Factory overhead costs are applied on the basis of standard machine hours allowed for units produced. Budgeted and actual output for the year was 18,700 units, which took 39,700 machine hours. Actual fixed factory overhead costs for the year amounted to $248,300 while the actual variable overhead cost per unit was $2.10. Based on the information provided above, what was (a) the fixed overhead spending (budget) variance for the year, and (b) the production volume variance for the year? Indicate whether each variance was favorable (F) or unfavorable (U). (Do not round intermediate calculations. Round final answers to the nearest whole dollar amount.)
Patel and Sons Inc. uses a standard cost system to apply factory overhead costs to units produced. Practical capacity for the plant is defined as 50,700 machine hours per year, which represents 25,350 units of output. Annual budgeted fixed factory overhead costs are $253,500 and the budgeted variable factory overhead cost rate is $2.20 per unit Factory overhead costs are applied on the basis of standard machine hours allowed for units produced. Budgeted and actual output for the year was 18,700 units, which took 39,700 machine hours. Actual fixed factory overhead costs for the year amounted to $248,300 while the actual variable overhead cost per unit was $2.10. Based on the information provided above, what was (a) the fixed overhead spending (budget) variance for the year, and (b) the production volume variance for the year? Indicate whether each variance was favorable (F) or unfavorable (U). (Do not round intermediate calculations. Round final answers to the nearest whole dollar amount.)
Chapter1: Financial Statements And Business Decisions
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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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Patel and Sons Inc. uses a standard cost system to apply factory overhead costs to units produced. Practical capacity for
the plant is defined as 50,700 machine hours per year, which represents 25,350 units of output. Annual budgeted fixed
factory overhead costs are $253,500 and the budgeted variable factory overhead cost rate is $2.20 per unit. Factory
overhead costs are applied on the basis of standard machine hours allowed for units produced. Budgeted and actual
output for the year was 18,700 units, which took 39,700 machine hours. Actual fixed factory overhead costs for the year
amounted to $248,300 while the actual variable overhead cost per unit was $2.10.
Based on the information provided above, what was (a) the fixed overhead spending (budget) variance for the year, and (b) the
production volume variance for the year? Indicate whether each variance was favorable (F) or unfavorable (U) (Do not round
intermediate calculations. Round final answers to the nearest whole dollar amount.)
(a) Spending (budget) variance
(b) Production volume variance
Favorable
Unfavorable
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