3. Compute the fixed overhead spending and volume variances. Spending Variance $4 Volume Variance 4. Compute the variable overhead spending and efficiency variances. Spending Variance Efficiency Variance %24 %24
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.
Direct Materials, Direct Labor, and
Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following
| Direct materials (5 lbs. @ $2.60) | $13.00 |
| Direct labor (0.75 hr. @ $18.00) | 13.50 |
| Fixed overhead (0.75 hr. @ $4.00) | 3.00 |
| Variable overhead (0.75 hr. @ $3.00) | 2.25 |
| Standard cost per unit | $31.75 |
Algers computes its overhead rates using practical volume, which is 54,000 units. The actual results for the year are as follows:
- Units produced: 53,000
- Direct materials purchased: 274,000 pounds at $2.50 per pound
- Direct materials used: 270,300 pounds
- Direct labor: 40,100 hours at $17.95 per hour
- Fixed overhead: $161,700
- Variable overhead: $122,000
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