ABC Inc uses normal costing and overhead is applied throughout the year based on direct labor hours. Estimate, Jan 1 Actual, Dec 31 Overhead 504,630 554,380 Direct labor hours 81000 86700 Unadjusted Cost of Goods Sold 930,000 Calculate the predetermined overhead rate and total applied overhead. Calculate the variance between total applied overhead and actual overhead for the year. Does that mean that overhead costs were under or over applied? What is one factor that could have contributed to this variance occurring? Find the adjusted Cost of Goods Sold to account for this 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.
ABC Inc uses normal costing and overhead is applied throughout the year based on direct labor hours.
Estimate, Jan 1 Actual, Dec 31
Overhead 504,630 554,380
Direct labor hours 81000 86700
Unadjusted Cost of Goods Sold 930,000
- Calculate the predetermined overhead rate and total applied overhead.
- Calculate the variance between total applied overhead and actual overhead for the year.
- Does that mean that overhead costs were under or over applied? What is one factor that could have contributed to this variance occurring?
- Find the adjusted Cost of Goods Sold to account for this variance.
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