Blaze Corporation allocates overhead on the basis of DLH and the standard amount per allocation base is 2 DLH per unit. For March, the company planned production of 10,000 units (80% of its production capacity of 12,500 units) and prepared the following budget. The company actually operated at 90% capacity (11,250 units) in March and incurred actual total overhead costs of $76,335. Overhead Budget 80% Operating Levels Production in units 10,000 Budgeted variable overhead $ 32,000 Budgeted fixed overhead $ 42,000 1. Compute the standard overhead rate. Hint: Standard allocation base at 80% capacity is 20,000 DLH, computed as 10,000 units × 2.00 DLH per unit. 2. Compute the total overhead variance. 3. Compute the overhead controllable 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.
Blaze Corporation allocates
| Overhead Budget | 80% Operating Levels |
|---|---|
| Production in units | 10,000 |
| Budgeted variable overhead | $ 32,000 |
| Budgeted fixed overhead | $ 42,000 |
1. Compute the standard overhead rate. Hint: Standard allocation base at 80% capacity is 20,000 DLH, computed as 10,000 units × 2.00 DLH per unit.
2. Compute the total overhead variance.
3. Compute the overhead controllable variance.
4. Compute the overhead volume variance.
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