The predetermined overhead rate for Lithian Company is $7, comprised of a variable overhead rate of $4 and a fixed rate of $3. The amount of budgeted overhead costs at normal capacity of $210,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $7. Actual overhead for June was $21,500 variable and $17,350 fixed, and standard hours allowed for the product produced in November was 5,000 hours. The total overhead variance is $8,550 unfavorable $3,550 unfavorable $3,550 favorable $8,550 favorable
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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