Norris Company produces telephones. To help control costs, Norris employs a standard costing system and uses a flexible budget to predict overhead costs at various levels of activity. For the most recent year, Norris used a standard overhead rate of P18 per direct labor hour. The rate was computed using practical activity. Budgeted overhead costs are P792,000 for 36,000 direct labor hours and P1,080,000 for 60,000 direct labor hours. During the past year, Norris generated the following data: Actual production: 100,000 units Fixed overhead volume variance: P36,000 U Determine variable overhead efficiency variance: P24,000 F Actual fixed overhead costs: P380,000 Actual variable overhead costs: P620,000 REQUIRED: Calculate the fixed overhead rate: Determine the fixed overhead spending variance. Determine the variable overhead spending variance. Determine the standard hours allowed per unit of product. Assuming the standard labor rate is P13 per hour, compute the labor efficiency variance.
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.
Norris Company produces telephones. To help control costs, Norris employs a
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Actual production: 100,000 units
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Fixed overhead volume variance: P36,000 U
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Determine variable overhead efficiency variance: P24,000 F
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Actual fixed overhead costs: P380,000
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Actual variable overhead costs: P620,000
REQUIRED:
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Calculate the fixed overhead rate:
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Determine the fixed overhead spending variance.
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Determine the variable overhead spending variance.
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Determine the standard hours allowed per unit of product.
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Assuming the standard labor rate is P13 per hour, compute the labor efficiency variance.
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