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 130,000 units requiring 520,000 direct labor hours. (Practical capacity is 540,000 hours.) Annual budgeted overhead costs total $847,600, of which $613,600 is fixed overhead. A total of 119,300 units using 518,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $260,700, and actual fixed overhead costs were $555,050. Required 1. Compute the fixed overhead spending and volume variances. Fixed Overhead Spending Variance Fixed Overhead Volume Variance 2. Compute the variable overhead spending and efficiency variances. Do not round intermediate calculations Variable Overhead Spending Variance Variable Overhead Efficiency Variance

Answer 1

Solution 1:

Fixed Overhead Cost Variance
Actual Fixed OH Cost					Budgeted Fixed Overhead					Standard Cost (FOH Applies)
										SH*	BR
		$555,050.00					$613,600.00			477200	$1.18	$563,096.00
			$58,550.00	F				$50,504.00	U
			Fixed overhead Budget Variance					Fixed overhead volume variance

Solution 2:

Variable Overhead Cost Variance
Actual Cost					Standard cost for actual quantity					Standard Cost
AH *	AR =				AH *	SR =				SH *	SR =
518000	$0.5033	$260,700.00			518000	$0.45	$233,100.00			477200	$0.45	$214,740.00
			$27,600.00	U				$18,360.00	U
			Variable overhead spending variance					Variable overhead efficiency variance