Problem 4. NEW JERSEY CORP. uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are P20,000 for variable overhead and P30,000 for fixed overhead. The predetermined overhead rate, including both fixed and variable components, is P2.50 per direct labor-hour. The standards call for two direct labor-hours per unit of output produced. Last year, the company produced 11,500 units of product and worked 22,000 direct labor-hours. Actual costs were P22,500 for variable overhead and P31,000 for fixed overhead. Required: (a) What is the denominator level of activity? (b) What were the standard hours allowed for the output last year? (c) What was the variable overhead spending variance? (d) What was the variable overhead efficiency variance? (e) What was the fixed overhead budget variance? (f) What was the fixed overhead volume variance?
Problem 4. NEW JERSEY CORP. uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are P20,000 for variable overhead and P30,000 for fixed overhead. The predetermined overhead rate, including both fixed and variable components, is P2.50 per direct labor-hour. The standards call for two direct labor-hours per unit of output produced. Last year, the company produced 11,500 units of product and worked 22,000 direct labor-hours. Actual costs were P22,500 for variable overhead and P31,000 for fixed overhead. Required: (a) What is the denominator level of activity? (b) What were the standard hours allowed for the output last year? (c) What was the variable overhead spending variance? (d) What was the variable overhead efficiency variance? (e) What was the fixed overhead budget variance? (f) What was the fixed overhead volume variance?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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