The following information relates to Longman, Inc.'s overhead costs for the month: 1(Click the icon to view the information.) Requirements 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable.
The following information relates to Longman, Inc.'s overhead costs for the month: 1(Click the icon to view the information.) Requirements 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. 2. Explain why the variances are favorable or unfavorable.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
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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Question
The following information relates to
overhead costs for the month:
Longman, Inc.'s
1(Click
the icon to view the information.)Requirements
|
1.
|
Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.
|
|
2.
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Explain why the variances are favorable or unfavorable.
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Requirement 1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.
Begin by selecting the formulas needed to compute the variable overhead (VOH) and fixed overhead (FOH) variances, and then compute each variance amount.
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(Actual cost -
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=
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VOH cost variance
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|
(Actual hours - Standard hours allowed) × Standard cost
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=
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VOH efficiency variance
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|
Actual overhead - Budgeted overhead
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=
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FOH cost variance
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|
Budgeted overhead - Allocated overhead
|
=
|
FOH volume variance
|
|
=
|
|
|
=
|
|
|
=
|
|
|
=
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|
Requirement 2. Explain why the variances are favorable or unfavorable.
The variable overhead cost variance is
because
than budgeted.
(1)
Longman
actually spent
(2)
The variable overhead efficiency variance is
because the actual hours used was
than budgeted.
(3)
(4)
The fixed overhead cost variance is
because
than budgeted for fixed overhead.
(5)
Longman
actually spent
(6)
The fixed overhead volume variance is
because
overhead to jobs than the budgeted fixed overhead amount.
(7)
Longman
allocated
(8)
1: Data Table
|
Static budget variable overhead
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$7,500
|
|---|---|
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Static budget fixed overhead
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$3,000
|
|
Static budget direct labor hours
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1,500 hours
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|
Static budget number of units
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7,500 units
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Longman
allocates manufacturing overhead to production based on standard direct labor hours. Last month,
Longman
reported the following actual results: actual variable overhead,
$10,100;
actual fixed overhead,
$2,840;
actual production of
7,200
units at
0.25
direct labor hours per unit. The standard direct labor time is
0.2
direct labor hours per unit
(1,500
static direct labor hours /
7,500
static units).(1)
unfavorable
favorable
(2)
less
more
(3)
unfavorable
favorable
(4)
less
more
(5)
favorable
unfavorable
(6)
less
more
(7)
unfavorable
favorable
(8)
less
more
|
YOU ANSWERED:
|
|
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