Adom Company uses a standard cost system for its production process and applies overhead based on direct labour hours. The following information is available for May when Adom produced 4,500 units: Standard: Direct labour hour per unit - 2.50, Variable overhead per direct labour hour - GH¢1.75, the fixed overhead per direct labour hour - GH¢3.10, Budgeted variable overhead - GH¢21,875, Budgeted fixed overhead - GH¢38,750. Actual: Direct labour hours - 10,000, Variable overhead- GH¢26,250, Fixed overhead- GH¢38,000. Calculate the total variable overhead cost and total fixed overhead cost.
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.
Adom Company uses a
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