Normal annual capacity for ABC Company is 72,000 units, with fixed factory overhead budgeted at P 33,840 and an estimated variable factory overhead rate for P 4.20 per unit. During October, actual production was 5,400 units, with a total overhead of P 15,910. Required: Compute for the following The applied factory overhead The over or underapplied factory overhead The spending variance The idle capacity 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.
Normal annual capacity for ABC Company is 72,000 units, with fixed factory
Required: Compute for the following
- The applied factory overhead
- The over or underapplied factory overhead
- The spending variance
- The idle capacity variance
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