Cost Accounting Assignment:

Complete variance analysis

Given the following information for Company XYZ, find all 9 variances.

{Material price usage and material quantity, 2 labors, 2 variance and 3 variance factory overhead....not the material purchases price variance}

Company XYZ has a budgeted monthly normal capacity of 15,000 direct labor hours with a standard production of 7500 units at that capacity. Standard costs are as follows: [so it takes 2 hours to make one.]

Material..............3 lbs. @ $.75/lb

Labor.................$13.50/dlh

Overhead..........Fixed is $7500; Variable is $1.20/hr.

During April actual factory overhead was $25,250. 14,500 labor hours cost $188,500. 7000 units were produced using 21,000 pounds of material that cost $.78/lb.

MAKE SURE YOU LABEL EACH AS FAVORABLE OR UNFAVORABLE

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Follow the direction below for the solution

Two- Variance Method:

Actual factory overhead __________

Budget based on STANDARD hours

Fixed: _______

Variable: _____

Total Budget: __________

Applied

[st. hours x factory overhead rate] __________

Standard hours are determined by taking the amount of time it takes to make one item and multiplying that by the ACTUAL NUMBER PRODUCED FOR THAT TIME PERIOD.

Actual - budget = Controllable Variance [favorable if we spent less than the budget]

Budget - WIP = Volume Variance [favorable if actual hours are more than normal capacity] ---because we had many orders for work.

Three-Variance Method:

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Actual factory overhead _________

Budget based on ACTUAL hours

Fixed: _____

Variable: _____

Total Budget: __________

Actual hours x standard rate __________

Applied [same as above] __________

Actual - budget = Spending Variance [favorable if we spent less]

Budget - [ah x sr] = Idle Capacity Variance [favorable if actual hours are greater than normal capacity]

[Ah x sr] - applied = Efficiency Variance [favorable when actual hours are less than standard.]

Overhead analysis is complicated. It comes in a variety of ways. One of the hardest things to determine is whether a variance is favorable or unfavorable.

Two-Variance Method:

CONTROLLABLE VARIANCE

Measures how we have controlled our factory overhead costs in relation to our F.O. budget.

VOLUME VARIANCE

Measures how active the factory was. Did we have enough orders to fill? It would be awful if we didn't have enough orders and we still went over budget

Three-Variance Method:

SPENDING VARIANCE

Measures the same thing as the controllable variance except that the budget is based upon actual rather than standard production

IDLE CAPACITY VARIANCE

Measures the same thing as the volume variance, but again is based upon actual rather than standard production.

EFFICIENCY VARIANCE

Compares actual hours against standard hours, example, was the job completed on time and how did that effect factory overhead.