Compute the following variances. Indicate whether each is favorable or unfavorable, where appropriate. 1) Variable-overhead spending variance,Variable-overhead efficiency variance, Fixed-overhead budget variance, Fixed-overhead volume variance. Prepare journal entries to : 2) Record the incurrence of actual variable overhead and actual fixed overhead. 3) Add variable and fixed overhead to Work-in-Process Inventory.
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 Company uses a standard-costing system. The firm estimates that it will operate its manufacturing facilities at 800,000 machine hours for the year. The estimate for total budgeted overhead is $2,000,000 +(STT*10). The standard variable-overhead rate is estimated to be $2 per machine hour or $6 per unit. The actual data for the year are presented below.
Actual finished units
250,000
Actual machine hours
764,000
Actual variable overhead ($)
1,705,000
Actual fixed overhead ($)
402,000
Required:
Compute the following variances. Indicate whether each is favorable or unfavorable, where appropriate.
1) Variable-overhead spending variance,Variable-overhead efficiency variance, Fixed-overhead
Prepare
2) Record the incurrence of actual variable overhead and actual fixed overhead.
3) Add variable and fixed overhead to Work-in-Process Inventory.
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