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 126,000 units requiring 504,000 direct labor hours. (Practical capacity is 524,000 hours.) Annual budgeted overhead costs total $811,440, of which $584,640 is fixed overhead. A total of 119,000 units using 502,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $261,500, and actual fixed overhead costs were $556,150. Required: 1. Compute the fixed overhead spending and volume variances. Fixed Overhead Spending Variance $ 28,490 Favorable Fixed Overhead Volume Variance $ 32,480 Unfavorable 2. Compute the variable overhead spending and efficiency variances. Do not round intermediate calculations Variable Overhead Spending Variance $ 35,600 Unfavorable Variable Overhead Efficiency Variance $ Unfavorable

Answer 1

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Oerstman, Inc.	Amount $	Note
Expected annual output	126,000.00	A
Direct labor hours required	504,000.00	B
Direct labor hours per unit	4.00	C=B/A
Annual budgeted overhead costs	811,440.00	D
Annual budgeted Fixed overhead	584,640.00	E
Annual budgeted Variable overhead	226,800.00	F=D-E
Variable overhead per hour	0.45	R=F/B
Variable Overhead Variance		Finished Units	Input per unit	Input required	Rate per unit	Amount $
Standard Hours allowed for Actual Output at Standard Rate		119,000.00	4.00	476,000.00	0.45	214,200.00	G
Actual Hours of Input, at Standard Rate				502,000.00	0.45	225,900.00	H
Actual Hours of Input, at Actual Rate						261,500.00	I
Variable overhead efficiency variance (H-G)						11,700.00	Unfavorable
Variable overhead Spending variance (I-H)						35,600.00	Unfavorable
Total Variable overhead variance (I-G)						47,300.00	Unfavorable
Fixed Overhead Variance
Annual budgeted Fixed overhead						584,640.00		J
Annual budgeted (hours)						504,000.00		K
Standard Fixed overhead per hour						1.16		L=J/K
Standard Hours allowed for Actual Output						476,000.00		M
Applied fixed overhead						552,160.00		N=M*L
Fixed Overhead Volume Variance						32,480.00	Unfavorable	O=J-N
Actual Fixed cost						556,150.00		P
Standard Fixed cost						584,640.00		J
Fixed Overhead Spending Variance						28,490.00	Favorable	Q=J-P