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Overhead Variances, Two- And Three-Variance Analyses Oerstman, Inc., uses a standard costing system and develops its...

Overhead Variances, Two- And Three-Variance Analyses

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 120,000 units requiring 480,000 direct labor hours. (Practical capacity is 500,000 hours.) Annual budgeted overhead costs total $739,200, of which $542,400 is fixed overhead. A total of 119,300 units using 478,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $241,300, and actual fixed overhead costs were $556,350.

Required:

1. Compute overhead variances using a two-variance analysis.

Budget Variance $ Unfavorable
Volume Variance $ Unfavorable

2. Compute overhead variances using a three-variance analysis.

Spending Variance $ Unfavorable
Efficiency Variance $ Unfavorable
Volume Variance $ Unfavorable

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Expert Solution

Answer:

Compute Overhead Variance Using a Two Variance Analysis
Particular Amount
Actual Overhead ( $241300+$556350) 797650
Budgeted Overhead(SVORX SH+Fixed OH)
((739200-542400)/120000*119300)+542400		 738052
Applied Overhead (119300*739200/120000 734888
Budgeted Variance= Actual Overhed -Budgeted Overhead
$797650-$738052= 59598
Volume Overhead= Appplied Overhead- Budgeted Overhead
$734888-$738052= 3164
Compute Overhead Variance Using a Three Variance Analysis
Particular Amount
Actual Overhead ( $241300+$556300) 797650
Budgeted Fixed Overhead(SVORX AH)
((739200-542400)/480000*478000)+542400		 738380
Budgeted Fixed Overhead(SVORX SH+Fixed OH)
((739200-542400)/120000*119300)+542400		 738052
Applied Overhead (119100X780520/123500 752712
Sepnding Variance= Actual Overhed -Budgeted Fixed Overhead
=(797650-738380)= $59270 U
Efficiency Overhead= Budgeted Fxed Overhead- Budged fixed Standard OH
(738380-738052)= $328 U
Volume Variance=Applied Overhead-Budgeted Overhead
(752712-738052)=$14660 U

ekkarill92 answered 2 years ago
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