Garcia Corp’s current year annual budget for variable and fixed overhead costs total $192,500 and $220,000 respectively. The company uses machine-hours to allocate all overhead costs. The current year’s annual budget included 55,000 machine hours and the production of 44,000 units. Garcia’s actual results include the production of 60,000 units using 72,500 machine hours. Variable overhead costs were $245,870 and fixed overhead costs totaled $240,000. a. Compute a three-column variance analysis of variable manufacturing overhead including variance descriptions. b. Compute a three-column variance analysis of fixed manufacturing overhead including variance descriptions. c. Is Fixed Overhead Under or Over Allocated. Indicate using U or O and include the amount of underor over-allocated overhead.
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.
Garcia Corp’s current year annual budget for variable and fixed overhead costs total $192,500 and $220,000 respectively. The company uses machine-hours to allocate all overhead costs. The current year’s annual budget included 55,000 machine hours and the production of
44,000 units. Garcia’s actual results include the production of 60,000 units using 72,500 machine hours. Variable overhead costs were $245,870 and fixed overhead costs totaled $240,000.
a. Compute a three-column
b. Compute a three-column variance analysis of fixed manufacturing overhead including variance descriptions.
c. Is Fixed Overhead Under or Over Allocated. Indicate using U or O and include the amount of underor over-allocated overhead.
d. What is an important insight about Garcia’s capacity based on your analysis of Fixed Overhead?
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