The standard factory overhead rate is $10 per direct labor hour ($8 for variable factory overhead and $2 for fixed factory overhead) based on 100% of normal capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows: Standard hours at 100% of normal capacity 30,000 Standard hours for actual production 25,000 Standard total FOH cost (25,000 hours $10 per hour) $250,000 Actual Variable FOH costs $202,500 Actual Fixed FOH costs $60,000 Required: Calculate Variable FOH Controllable variance. Calculate Fixed FOH Volume variance. Calculate the total FOH variance.
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 standard factory
|
Standard hours at 100% of normal capacity |
30,000 |
|
Standard hours for actual production |
25,000 |
|
Standard total FOH cost (25,000 hours $10 per hour) |
$250,000 |
|
Actual Variable FOH costs |
$202,500 |
|
Actual Fixed FOH costs |
$60,000 |
Required:
- Calculate Variable FOH Controllable variance.
- Calculate Fixed FOH Volume variance.
- Calculate the total FOH variance.
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