Variable Overhead Variances. Hal’s Heating produces furnaces for commercial buildings. (This is the same company as the previous exercises. This exercise can be assigned independently.) The company applies variable manufacturing overhead at a standard rate of $15 per direct labor hour. The standard quantity of direct labor is 35 hours per unit. Variable overhead costs totaled $190,000 for the month of January. A total of 10,000 direct labor hours were worked during January to produce 320 furnaces. Required: Calculate the variable overhead spending variance and variable overhead efficiency variance using the format shown in Figure 4.8 “Variable Manufacturing Overhead Variance Analysis for Jerry’s Ice Cream”. Clearly label each variance as favorable or unfavorable.
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.
Variable Overhead Variances. Hal’s Heating produces furnaces for commercial buildings. (This is the same company as the previous exercises. This exercise can be assigned independently.) The company applies variable manufacturing overhead at a standard rate of $15 per direct labor hour. The standard quantity of direct labor is 35 hours per unit. Variable overhead costs totaled $190,000 for the month of January. A total of 10,000 direct labor hours were worked during January to produce 320 furnaces.
Required:
Calculate the variable overhead spending variance and variable overhead efficiency variance using the format shown in Figure 4.8 “Variable Manufacturing Overhead
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