Sedona Company set the following standard costs for one unit of its product for this year. Direct material (20 pounds @ $2.60 per pound) $ 52.00 Direct labor (10 hours @ $8.00 per DLH) 80.00 Variable overhead (10 hours @ $4.40 per DLH) 44.00 Fixed overhead (10 hours @ $2.00 per DLH) 20.00 Standard cost per unit $ 196.00 The $6.40 ($4.40 + $2.00) total overhead rate per direct labor hour (DLH) is based on a predicted activity level of 40,500 units, which is 75% of the factory’s capacity of 54,000 units per month. The following monthly flexible budget information is available. Flexible Budget Operating Levels (% of capacity) 70% 75% 80% Budgeted production (units) 37,800 40,500 43,200 Budgeted direct labor (standard hours) 378,000 405,000 432,000 Budgeted overhead Variable overhead $ 1,663,200 $ 1,782,000 $ 1,900,800 Fixed overhead 810,000 810,000 810,000 Total overhead $ 2,473,200 $ 2,592,000 $ 2,710,800 During the current month, the company operated at 70% of capacity, direct labor of 365,000 hours were used, and the following actual overhead costs were incurred. Actual variable overhead $ 1,625,000 Actual fixed overhead 854,000 Actual total overhead $ 2,479,000 1. Compute the total variable overhead variance and identify it as favorable or unfavorable. (Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.) 2. Compute the total fixed overhead variance and identify it as favorable or unfavorable. (Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.)
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Sedona Company set the following standard costs for one unit of its product for this year.
| Direct material (20 pounds @ $2.60 per pound) | $ 52.00 |
|---|---|
| Direct labor (10 hours @ $8.00 per DLH) | 80.00 |
| Variable |
44.00 |
| Fixed overhead (10 hours @ $2.00 per DLH) | 20.00 |
| $ 196.00 |
The $6.40 ($4.40 + $2.00) total overhead rate per direct labor hour (DLH) is based on a predicted activity level of 40,500 units, which is 75% of the factory’s capacity of 54,000 units per month. The following monthly flexible budget information is available.
| Flexible Budget | Operating Levels (% of capacity) | ||
|---|---|---|---|
| 70% | 75% | 80% | |
| Budgeted production (units) | 37,800 | 40,500 | 43,200 |
| Budgeted direct labor (standard hours) | 378,000 | 405,000 | 432,000 |
| Budgeted overhead | |||
| Variable overhead | $ 1,663,200 | $ 1,782,000 | $ 1,900,800 |
| Fixed overhead | 810,000 | 810,000 | 810,000 |
| Total overhead | $ 2,473,200 | $ 2,592,000 | $ 2,710,800 |
During the current month, the company operated at 70% of capacity, direct labor of 365,000 hours were used, and the following actual overhead costs were incurred.
| Actual variable overhead | $ 1,625,000 |
|---|---|
| Actual fixed overhead | 854,000 |
| Actual total overhead | $ 2,479,000 |
1. Compute the total variable overhead variance and identify it as favorable or unfavorable. (Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.)
2. Compute the total fixed overhead variance and identify it as favorable or unfavorable. (Indicate the effect of the variance by selecting favorable, unfavorable, or no variance.)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
