Prepare a flexible budget for overhead based on the above data.
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.
| Percent of capacity | 90% | 100% | 110% |
| Direct labor hours | 3,600 | 4,000 | 4,400 |
| Units of output | 900 | 1,000 | 1,100 |
| Variable |
$2,880 | $3,200 | $3,520 |
| Fixed overhead | 5,600 | 5,600 | 5,600 |
| Total overhead | $8,480 | $8,800 | $9,120 |
Normal capacity = 100% and overhead is applied based on direct labor hours
Standard overhead rate = $8,800/4,000 = $2.20 per direct labor hour
Direct materials are $66.50 per unit.
Direct labor is $24.50 per hour.
Prepare a flexible budget for overhead based on the above data.
| Flexible Budget | |||
| 900 | 1,000 | 1,100 | |
| Direct Material | |||
| Direct Labor | |||
| Variable Overhead | |||
| Fixed Overhead | |||
| Total |
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