Question

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 123,000 units requiring 492,000 direct labor hours. (Practical capacity is 512,000 hours.) Annual budgeted overhead costs total $752,760, of which $546,120 is fixed overhead. A total of 119,000 units using 490,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $240,000, and actual fixed overhead costs were $555,450.

Required:

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

Spending Variance	$	Unfavorable

Provide very detailed calculations

Answer 1

Three variance Analysis. solution Compute overhead varlance using a Particular Actual overhead (240000 + 555450] Amount 795450 751920 Budgeted faxed overhead (SVORXAH) C 752760-546120)/492000 x 490000] + 546120 746040 Budgeted fered overhead (SNOR XSH + fixed oH) [C752760 - 546120)/123000 X119000) + 546120 Applied overhead ( 119000 X 752760 / 123000] 728280

= Spending variance Actual overhead - Budgeted fixed overhead E 795450 - 751920 = 43530 UF Efficiency overheadę = Budgeted fixed overhead - Budgeted fixed Standard oH 2 ( 751920 - 746040) - 5880 UF volume variance = Appleed overhead Budgeted overhead 928280 - 746040 17760 UF