Standard Cost Variance Analysis and Interpretations Glavine & Co. produces a single product, each unit of which requires three direct labor hours (DLHs). Practical capacity (for setting thefactory overhead application rate) is 30,000 DLHs, on an annual basis. The information below pertains to the most recent year:Standard direct labor hours (DLHs) per unit produced 3.00Practical capacity, in DLHs (per year) 30,000Variable Overhead Efficiency Variance $5,000 unfavorable (U)Actual production for the year 9,500 unitsBudgeted fixed manufacturing overhead $600,000Standard direct labor wage rate $20.00 per DLHTotal overhead cost variance for the year $50,000 favorable (F)Direct Labor Efficiency Variance $10,000 unfavorable (U)Required1. What was the actual number of direct labor hours (DLHs) worked during the year? (Round answer tonearest whole number.) [Hint: Recall from Chapter 14 that the DL Efficiency Variance = SP × (SQ −AQ), where SP = standard labor rate per hour, SQ = standard # of DLHs for output produced, and AQ= actual number of DLHs worked.]
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.
factory
Standard direct labor hours (DLHs) per unit produced 3.00
Practical capacity, in DLHs (per year) 30,000
Variable Overhead Efficiency Variance $5,000 unfavorable (U)
Actual production for the year 9,500 units
Budgeted fixed manufacturing overhead $600,000
Standard direct labor wage rate $20.00 per DLH
Total overhead cost variance for the year $50,000 favorable (F)
Direct Labor Efficiency Variance $10,000 unfavorable (U)
Required
1. What was the actual number of direct labor hours (DLHs) worked during the year? (Round answer to
nearest whole number.) [Hint: Recall from Chapter 14 that the DL Efficiency Variance = SP × (SQ −
AQ), where SP = standard labor rate per hour, SQ = standard # of DLHs for output produced, and AQ
= actual number of DLHs worked.]
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