At the beginning of 201A, ABC Company had the following standard costs for one (1) of its chemical products: Direct material (3 pounds at P3.20) Labor standard (0.9 hours at P9.00) Variable overhead (0.9 hours at P1.50) Fixed overhead (0.9 hours at P4.00) P9.60 8.10 1.35 3.60 Total P22.65 ABC computes its overhead rates using budgeted capacity, which is 144,000 units. Actual results for 201A are: Units produced Materials purchased Materials used Direct labor Fixed overhead Variable overhead 140,000 units 421,175 lbs. at P3.30 421,000 lbs. 128,750 hrs at P8.90 P517,525 218,000
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.
Determine whether conditions are favorable or unfavorable.
1. Material purchase price variance (MPPV)
2. Material price usage variance (MPUV)
3. Material quantity variance (MQV)
4. Labor rate variance (LRV)
5. Labor efficiency variance (LEV)
6. Variable overhead (VOH) rate variance
7. VOH efficiency variance
8. Fixed overhead (FOH) spending variance
9. FOH volume variance
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