QUESTION 1 Acheson Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations. Estimated manufacturing overhead $ 157,050 Estimated machine-hours 4,500 $ 156,000 4,580 The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year. Actual manufacturing overhead Actual machine-hours The overhead for the year was: O $3,842 underapplied O $2,792 overapplied O $3,842 overapplied O $2,792 underapplied
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.
The estimated manufacturing overheads are the expected amount and they may differ from the actual figures. The manufacturing overheads include the indirect costs incurred to manufacture the product. These costs are allocated on some basis like machine hours etc. When the estimated manufacturing overheads for actual hours are less than the actual manufacturing overhead then it means overheads or under-applied.
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