Quality Inc. uses a standard cost system and provides the following information. Quality allocates manufacturing overhead to production based on standard direct labor hours. Quality reported the following actual results for 2018: The actual number of units produced is 1,000. The actual variable overhead is $2,500. The actual fixed overhead is $3,500. The actual direct labor hours are 1,200. Data Static budget variable overhead $1,200 Static budget fixed overhead $1,600 Static budget direct labor hour $800 Static budget number of units 400 units. Static direct labor hours 2 hours per unit. Compute the variable overhead cost and efficiency variances and fixed overhead cost and volume variances. 1)-Variable overhead cost variance = Actual hours x (Actual rate – Standard rate) 2)-Variable overhead efficiency variances = Standard rate x (Actual labor hours – Standard labor*hours for actual production). 3)-Fixed overhead cost variances = Actual fixed overhead – Budgeted fixed overhead 4)-Fixed overhead volume variances = Budgeted fixed overhead * (Budgeted labor hours – Standard labor hours for actual production) Explain why the variances are favorable or 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.
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Quality Inc. uses a
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