Variable overhead spending variances The following standard costs were developed for one of the products of ELJAY Sdn Bhd(ESB):STANDARD COST PER UNITRMDirect materialsDirect labor3 feet @ RM4.00 per foot5 hours @ RM8.00 per hour5 hours @ RM4.00 per hour5 hours @ RM6.00 per hour12.0040.00Variable overheadFixed overheadTotal standard cost per unit20.0030.00102.00The following information is available regarding the company's operations for the period:Units producedMaterials purchased40,000240,000 feet at RM4.40 per foot150,000 feetMaterials usedDirect laborOverhead incurred:VariableFixed220,000 hours at RM8.30 per hourRM770,000RM900,000Budgeted fixed overhead for the period is RM960,000, and the standard fixed overhead rate isbased on the expected capacity of 160,000 direct labor hours.REQUIRED:(a) Compute the following variances. Indicate whether it is Favorable (F) or Unfavorable(UF) variance.

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Description: Variable overhead spending variances The following standard costs were developed for one of the products of ELJAY Sdn Bhd(ESB):STANDARD COST PER UNITRMDirect materialsDirect labor3 feet @ RM4.00 per foot5 hours @ RM8.00 per hour5 hours @ RM4.00 per h

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Variable overhead spending variances

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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

Variable overhead spending variances

The following standard costs were developed for one of the products of ELJAY Sdn Bhd
(ESB):
STANDARD COST PER UNIT
RM
Direct materials
Direct labor
3 feet @ RM4.00 per foot
5 hours @ RM8.00 per hour
5 hours @ RM4.00 per hour
5 hours @ RM6.00 per hour
12.00
40.00
Variable overhead
Fixed overhead
Total standard cost per unit
20.00
30.00
102.00
The following information is available regarding the company's operations for the period:
Units produced
Materials purchased
40,000
240,000 feet at RM4.40 per foot
150,000 feet
Materials used
Direct labor
Overhead incurred:
Variable
Fixed
220,000 hours at RM8.30 per hour
RM770,000
RM900,000
Budgeted fixed overhead for the period is RM960,000, and the standard fixed overhead rate is
based on the expected capacity of 160,000 direct labor hours.
REQUIRED:
(a) Compute the following variances. Indicate whether it is Favorable (F) or Unfavorable
(UF) variance.

Definition Definition Indirect costs incurred while producing goods or services. Overhead costs cannot be directly attributed to products or services. Overhead includes indirect material cost, indirect labor cost, rent, utilities expenses, and depreciation. Since these costs directly affect the profitability of a company, managing overhead becomes an important task for management.

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