Overhead information for Cran-Mar Company for October follows: Total factory overhead cost incurred $ 16,700 Budgeted fixed factory overhead cost $ 4,902 Total standard overhead rate per machine hour (MH) $ 4.95 Standard variable factory overhead rate per MH $ 3.50 Standard MHs allowed for the units manufactured 4,850 Required: 3. Two-way analysis (breakdown) of the total factory overhead cost variance: Using panel B in Exhibit 15.7 as a guide, calculate the following factory overhead cost variances for October and indicate whether each variance is favorable (F) or unfavorable (U). b. Production volume variance. 4. Confirm your answer to 3b above by using the model at the bottom of Exhibit 15.6 to calculate the production volume variance and indicate whether the variance is favorable (F) or unfavorable (U).
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.
| Total |
$ | 16,700 | |
| Budgeted fixed factory overhead cost | $ | 4,902 | |
| Total standard overhead rate per machine hour (MH) | $ | 4.95 | |
| Standard variable factory overhead rate per MH | $ | 3.50 | |
| Standard MHs allowed for the units manufactured | 4,850 | ||
Required:
3. Two-way analysis (breakdown) of the total factory overhead cost variance: Using panel B in Exhibit 15.7 as a guide, calculate the following factory overhead cost variances for October and indicate whether each variance is favorable (F) or unfavorable (U).
b. Production volume variance.
4. Confirm your answer to 3b above by using the model at the bottom of Exhibit 15.6 to calculate the production volume variance and indicate whether the variance is favorable (F) or unfavorable (U).
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