In all of the exercises involving variances, use “F” and “U” to designate favorable and...

In all of the exercises involving variances, use “F” and “U” to designate favorable and unfavorable variances, respectively.

(Appendix) Calculating factory overhead: four variances

Gonzo Gasket Co. budgets 8,000 direct labor hours for the year. The total overhead budget is expected to amount to $20,000. The standard cost for a unit of the company’s product estimates the variable overhead as follows:

Variable factory overhead (3 hours @ $2 per direct labor hour) . . . . $6 per unit

The actual data for the period follow:

Actual completed units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500

Actual direct labor hours. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,640

Actual variable overhead. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,100

Actual fixed overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920

Using the four-variance method, calculate the overhead variances.

(Hint: First compute the budgeted fixed overhead rate.)