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 121,000 units requiring 484,000 direct labor hours. (Practical capacity is 504,000 hours.) Annual budgeted overhead costs total $740,520, of which $537,240 is fixed overhead. A total of 119,400 units using 482,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $240,100, and actual fixed overhead costs were $555,450. 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 A Volume Variance Unfavorable

Answer 1

Slotin Compute ovhead vantance uing a Two voudance Analy Partalan Amount Actoal orhead 4lo0 555450) 795550 Bvdguted ovehnd (svORXSH-ed DH 737632 a40520- 63u/121000 x 114400]+512Y0 Appud ovehead nayso y ayo520/121000) 730728 Actual ovenhead Budgeted Vardance = udgeted ovehead 79550 - 737832 SRUnAvoabte Volume bvohead= APplued overhea d Budgeted overhead 30728 737832 2 Compute dvenhead Vaniance ustng a Three vardance analya partenlan AmoUnt Actval ovehead (240l00 t 555450) 795550 Budgeted fed overhead (svoRXAH) 739680 CLaio50-532449400 x 4200053740 Bvdgeled ftred evenhead CsoR xSHAed o) o5205a4/ ral000 y 119 400+ 5374 73832 730722 Appleed overhtad'14400x 0/12000

Actual overhead - Budgeted ftxed overhead Spendtng varlance 743550 739680) 558ao UF overhead= Budgeted FIxed Etticeny Budgeted ftxed overhead Standord oH 3832 (739680 t848 UF Appleed overhead Bvdgeted ovehead Nolume vadance 1 73078 3832)- 1o4 UF