Question

Overhead Variances, Four-Variance Analysis Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 129,000 units requiring 516,000 direct labor hours. (Practical capacity is 536,000 hours.) Annual budgeted overhead costs total $861,720, of which $608,880 is fixed overhead. A total of 119,300 units using 514,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $261,800, and actual fixed overhead costs were $556,250. Required: 1. Compute the fixed overhead spending and volume variances. Fixed Overhead Spending Variance $ 52,630 Favorable Fixed Overhead Volume Variance $ 45,784 Unfavorable 2. Compute the variable overhead spending and efficiency variances. Do not round intermediate calculations Variable Overhead Spending Variance $ Unfavorable Variable Overhead Efficiency Variance $ Unfavorable

Answer 1

		Budegted	Actual
Output	units	129000	119300
Direct Labour Hours	hours	516000	514000
Capacity	hours	536000	536000
Budgeted Overhead		861720	818050
Fixed	in $	608880	556250
Variable	in $	252840	261800
Fixed Overhead Spending Variance	Actual cost -Budgeted cost	556250-608880
		-52630	Favourable	(less spending as compared to budget)
Fixed Overhead Budgeted Rate	Fixed Overhead/Budgeted Quantity	608880/129000
		4.72
Fixed overhead Volume/efficiency Variance	(Actual Units-Budgeted Units)*Fixed Overhead Budgeted Rate	(119300-129000)*4.72
		-45784	Unfavourable
Variable overhead Spending variance	Actual cost-Budgeted cost	261800-252840
		8960	Unfavourable	(more spending as compared to budget)
Variable Overhead Rate	Variable Overhead/Budgeted Quantity	252840/129000	1.96
Variable overhead volume/Efficiency Variance	(Actual Units-Budgeted Units)*Variable Overhead Budgeted Rate	(119300-129000)*1.96
		-19012	Unfavourable