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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 123,500 units requiring 494,000 direct labor hours. (Practical capacity is 514,000 hours.) Annual budgeted overhead costs total $780,520, of which $558,220 is fixed overhead. A total of 119,100 units using 492,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $242,000, 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

Compute Overhead Variance Using a Two Variance Analysis
Particular Amount
Actual Overhead ( $242000+$556350) 798350
Budgeted Overhead(SVORX SH+Fixed OH)
((780520-558220)/123500*119100)+558220		 772600
Applied Overhead (119100X780520/123500 752712
Budgeted Variance= Actual Overhed -Budgeted Overhead
$798350-$772600= 25750
Volume Overhead= Appplied Overhead- Budgeted Overhead
$752712-$772600= 19888
Compute Overhead Variance Using a Three Variance Analysis
Particular Amount
Actual Overhead ( $242000+$556350) 798350
Budgeted Fixed Overhead(SVORX AH)
((780520-558220)/494000*492000)+558220		 779620
Budgeted Fixed Overhead(SVORX SH+Fixed OH)
((780520-558220)/123500*119100)+558220		 772600
Applied Overhead (119100X780520/123500 752712
Sepnding Variance= Actual Overhed -Budgeted Fixed Overhead
=(798350-779620)= $18730UF
Efficiency Overhead= Budgeted Fxed Overhead- Budged fixed Standard OH
(779620-772600)= $7020 UF
Volume Variance=Applied Overhead-Budgeted Overhead
(752712-772600)=$19888 UF

ekkarill92 answered 1 year ago
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