Analysis of the Total Overhead Variance
Simpson Manufacturing has the following standard cost sheet for one of its products:
|
Direct materials
|
5 pounds at $2 per pound
|
Total
$ 10
|
|
Direct labor
|
2 hours at $25 per hour
|
50
|
|
Variable factory overhead
|
2 hours at $5 per hour
|
10
|
|
Fixed factory overhead
|
2 hours at $20 per hour
|
40
|
|
Cost per unit
|
|
$110
|
The company uses a standard cost system and applies factory overhead based on direct labor hours and determines the factory overhead rate based on a practical capacity of 400 units of the product.