When analyzing the total variable overhead cost variance into both spending and efficiency variances, it is often assumed that direct labour hours is the sole cost driver. Submission Instructions: Explain if direct labour costs could ever be a better cost driver of variable overhead costs than direct labour hours. How would ABC system affect the overhead variances?
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.
Question 9.5
When analyzing the total variable
Submission Instructions:
- Explain if direct labour costs could ever be a better cost driver of variable overhead costs than direct labour hours.
- How would ABC system affect the overhead variances?
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