Patton Corporation uses a standard cost system to account for the costs of its one product. Budgeted fixed overhead is $83,000, budgeted production is 2,420 per month, and practical capacity is 3,400 units. During November, Patton produced 2,200 units. Fixed overhead incurred totaled $70,710. Assume Patton calculates its fixed overhead rate based on
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.
Patton Corporation uses a
Assume Patton calculates its fixed overhead rate based on budgeted production.
Required:
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What is the fixed overhead rate?
- What is the fixed overhead volume variance?
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By how much was fixed overhead over- or underapplied?
Now assume Patton calculates its fixed overhead rate based on practical capacity.
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What is the fixed overhead capacity rate?
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What is the expected (planned) capacity variance?
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What is the unexpected (unplanned) capacity variance?
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By how much was fixed overhead over- or underapplied?
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