1. Compute efficiency and flexible-budget variances for Cavio's variable overhead in March 2017. Will variable overhead be over- or underallocated? By how much? 2. Compute production-volume and flexible-budget variances for Cavio's fixed overhead in March 2017. Will fixed overhead be over- or underallocated? By how much? Required
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.
Overhead variances, service sector. Cavio is a cloud service provider that offers computing resources to handle enterprise-wide applications. For March 2017, Cavio estimates that it will provide 18,000 RAM hours of services to clients. The budgeted variable overhead rate is $6 per RAM hour. At the end of March, there is a $500 favorable spending variance for variable overhead and a $1,575 unfavorable spending variance for fixed overhead. For the services actually provided during the month, 14,850 RAM hours are budgeted and 15,000 RAM hours are actually used. Total actual overhead costs are $119,875.
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