Alladdin Company EarPlug Production. Overhead is applied to products on the basis of direct labor hours. The denominator level of activity is 4,030 hours. The company’s standard cost card is below: Direct materials – Memory Foam: 6 pieces per EarPlug at $0.50 per piece Direct labor: 1.3 hours per EarPlug at $8 per hour Variable manufacturing overhead: 1.3 hours per EarPlug at $4 per hour Fixed manufacturing overhead: 1.3 hours per Earplug at $6 per hour During January, the company produced 3,000 CrittEars. The fixed overhead expense budget was $24,180. Actual costs in January were as follows: Direct materials: 25,000 pieces purchased at a cost of $0.48 per piece Direct labor: 4,000 hours were worked at a cost of $36,000 Variable manufacturing overhead: Actual cost was $17,000 Fixed manufacturing overhead: Actual cost was $25,000 Answer the below: Overhead Budget Variance Overhead Volume Variance. Discuss at least two possible reasons for the 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.
Alladdin Company EarPlug Production.
Direct materials – Memory Foam: 6 pieces per EarPlug at $0.50 per piece
Direct labor: 1.3 hours per EarPlug at $8 per hour
Variable manufacturing overhead: 1.3 hours per EarPlug at $4 per hour
Fixed manufacturing overhead: 1.3 hours per Earplug at $6 per hour
During January, the company produced 3,000 CrittEars. The fixed overhead expense budget was $24,180.
Actual costs in January were as follows:
Direct materials: 25,000 pieces purchased at a cost of $0.48 per piece
Direct labor: 4,000 hours were worked at a cost of $36,000
Variable manufacturing overhead: Actual cost was $17,000
Fixed manufacturing overhead: Actual cost was $25,000
Answer the below:
- Overhead
Budget Variance - Overhead Volume Variance.
- Discuss at least two possible reasons for the variance
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