Simpson Manufacturing has the following standard cost sheet for one of its products: Total Direct materials Direct labor 5 pounds at $2 per pound $10 2 hours at $25 per hour 50 Variable factory overhead 2 hours at $5 per hour 10 Fixed factory overhead 2 hours at $20 per hour Cost per unit 40 $110 The company uses a standard cost system and applies factory overhead cost based on direct labor hours and determines the factory overhead rate based on a practical capacity of 400 units of the product. Simpson has the following actual operating results for the year just completed: Units manufactured 390 Direct materials purchased and used 1,950 pounds $ 21,450 Direct labor incurred 900 hours 24,300 Variable factory overhead incurred 5,760 Fixed factory overhead incurred 15,800 Before closing the periodic accounts, the (standard cost) entries in selected accounts follow: Account Debit (total) Credit (total) Work-in-process inventory S 198,000 $ 149,640 Finished goods inventory 149,640 126,690 Cost of goods sold 126,690 3. Compute the following factory overhead cost variances using three-variance analysis: a. Overhead spending variance. b. Overhead efficiency variance. c. Fixed overhead production volume variance.
Simpson Manufacturing has the following standard cost sheet for one of its products: Total Direct materials Direct labor 5 pounds at $2 per pound $10 2 hours at $25 per hour 50 Variable factory overhead 2 hours at $5 per hour 10 Fixed factory overhead 2 hours at $20 per hour Cost per unit 40 $110 The company uses a standard cost system and applies factory overhead cost based on direct labor hours and determines the factory overhead rate based on a practical capacity of 400 units of the product. Simpson has the following actual operating results for the year just completed: Units manufactured 390 Direct materials purchased and used 1,950 pounds $ 21,450 Direct labor incurred 900 hours 24,300 Variable factory overhead incurred 5,760 Fixed factory overhead incurred 15,800 Before closing the periodic accounts, the (standard cost) entries in selected accounts follow: Account Debit (total) Credit (total) Work-in-process inventory S 198,000 $ 149,640 Finished goods inventory 149,640 126,690 Cost of goods sold 126,690 3. Compute the following factory overhead cost variances using three-variance analysis: a. Overhead spending variance. b. Overhead efficiency variance. c. Fixed overhead production 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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Transcribed Image Text:Simpson Manufacturing has the following standard cost sheet for one of its products:
Total
Direct materials
5 pounds at $2 per pound $10
Direct labor
2 hours at $25 per hour
50
Variable factory overhead 2 hours at $5 per hour
10
Fixed factory overhead 2 hours at $20 per hour
Cost per unit
40
$ 110
The company uses a standard cost system and applies factory overhead cost based on direct labor hours and determines the factory overhead rate based on a practical capacity of 400 units of the product.
Simpson has the following actual operating results for the year just completed:
Units manufactured
390
Direct materials purchased and used 1,950 pounds $ 21,450
Direct labor incurred
900
hours
24,300
Variable factory overhead incurred
5,760
Fixed factory overhead incurred
15,800
Before closing the periodic accounts, the (standard cost) entries in selected accounts follow:
Account
Debit (total) Credit (total)
Work-in-process inventory $ 198,000 $ 149,640
Finished goods inventory 149,640
126,690
Cost of goods sold 126,690
3. Compute the following factory overhead cost variances using three-variance analysis:
a. Overhead spending variance.
b. Overhead efficiency variance.
c. Fixed overhead production volume variance.
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