Gillette Pvt Ltd. factory overhead rate is Rs. 3 per hour. Budgeted overhead for 3000 hours per month is Rs.16000 and at 7000 hours is Rs.24000. Actual FOH for the month is Rs.18000 and hactual volume is 5000 hours. Required: 1. Variable overhead rate. 2. Budgeted fixed overhead. 3. Normal capacity hours. 4. Applied factory overhead. 5. Over or under applied factory overhead. What can be the possible reasons for the over or under applied FOH? And what measures should company take to overcome over applied FOH in future? 6. Spending Variance. What are the causes of unfavorable spending variance? And what measures should company take to reduce unfavorable spending variance in future? 7. Idle Capacity Variance. What are the causes of unfavorable idle capacity variance? And what measures should company take to reduce unfavorable idle capacity variance in future?
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.
Gillette Pvt Ltd. factory overhead rate is Rs. 3 per hour. Budgeted overhead for 3000 hours per
month is Rs.16000 and at 7000 hours is Rs.24000. Actual FOH for the month is Rs.18000 and
hactual volume is 5000 hours.
Required:
1. Variable overhead rate.
2. Budgeted fixed overhead.
3. Normal capacity hours.
4. Applied factory overhead.
5. Over or under applied factory overhead. What can be the possible reasons for the
over or under applied FOH? And what measures should company take to overcome
over applied FOH in future?
6. Spending Variance. What are the causes of unfavorable spending variance? And what
measures should company take to reduce unfavorable spending variance in future?
7. Idle Capacity Variance. What are the causes of unfavorable idle capacity variance? And
what measures should company take to reduce unfavorable idle capacity variance in
future?
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