Sheffield Company's overhead rate was based on estimates of $1,238,400 for overhead costs and 103,200 direct labor hours. Sheffield's standards allow 5 hours of direct labor per unit produced. Production in May was 1,742 units, and actual overhead incurred in May was $105,370. The overhead budgeted for 8,710 standard direct labor hours is $104,080 ($34,400 fixed and $69,680 variable).
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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