The following information was taken from the annual manufacturing overhead cost budget of Fergie Manufacturing. Variable manufacturing overhead costs $46,200 Fixed manufacturing overhead costs $27,720 Normal production level in labor hours 23,100 Normal production level in units 5,775 Standard labor hours per unit 4 During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $75,600. Actual fixed manufacturing
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.
The following information was taken from the annual
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Variable manufacturing overhead costs
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$46,200
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Fixed manufacturing overhead costs
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$27,720
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Normal production level in labor hours
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23,100
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Normal production level in units
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5,775
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Standard labor hours per unit
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4
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During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $75,600. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Fergie's total overhead rate is
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